* Euro zone factory PMI at 2-1/2 year high
* U.S. factory survey also hits 2-1/2 year high
* Numbers dent hopes for more central bank support
* Portuguese yields rise before Tuesday's bond exchange
By Ana Nicolaci da Costa and Marius Zaharia
LONDON, Dec 2 German bond yields rose on Monday
as data showing factories producing steadily in the euro zone
and the United States dented hopes that major central banks will
provide further support to the economy.
Portuguese government bond yields also jumped one day before
Portugal begins a bond swap exchange aimed at alleviating
redemption payments next year.
Euro zone manufacturing accelerated to its fastest pace in
over two years last month, a survey showed on Monday, while a
separate report showed U.S. factory activity hitting a 2
1/2-year high in November.
While the rates debate takes different paths in Europe and
the United States - the first focussed on the timing of more ECB
support, the latter on the withdrawal of monetary stimulus - the
numbers reinforced the idea of a global recovery.
"On both sides of the Atlantic, the data came in stronger
and dashed hopes for longer monetary policy easing or at least
trimmed expectations that this is about to happen," David
Schnautz, interest rate strategist at Commerzbank said.
Ten-year German yields rose 4.6 basis points
to 1.74 percent - the biggest one day gain since Nov. 8 and at
the upper end of the 1.65-1.80 percent range held last month.
German Bund futures settled 59 ticks lower at
141.12, as other euro zone debt also fell.
Markit's Eurozone Manufacturing PMI rose to 51.6 last month
from October's 51.3 - its fifth month above the 50 level where
growth starts and the highest reading since June 2011.
Data last week showed inflation rising 0.9 percent in
November, above the 0.8 percent forecast and up from 0.7 percent
in October, but still below the European Central Bank's target
of close to 2 percent.
A sharp fall in inflation in October prompted the European
Central Bank to cut its refinancing rate to a record low 0.25
percent. With ECB rates close to zero, further easing would only
occur if inflation kept falling, analysts said.
"Any hopes of ECB (easing) are being dampened ... especially
with the PMI (Purchasing Managers Index) revised up slightly,"
said Nick Stamenkovic, a bond strategist at RIA Capital Markets.
The ECB will also release its updated inflation and growth
forecasts, which investors will scour for hints on any policy
decisions next year.
Traders say that while the market is not positioned for any
moves from the ECB this week, there were widespread expectations
that President Mario Draghi would emphasise that he was ready to
do more to spur inflation and stimulate the economy if needed.
"They (the ECB) will continue to say that rates would stay
low and could be lowered further," BNP Paribas rate strategist
Patrick Jacq said. "Inflation remains below their comfort area
so they can't change their rhetoric but (November's inflation
data) won't be a trigger for further action."
While the euro zone manufacturing survey beat expectations,
Spain's showed its factory activity contracted for the first
time since July.
Spanish 10-year yields rose 4.2 basis points
to 4.17 percent, while equivalent Italian yields
rose 3.4 bps to 4.08 percent.
Ten-year Portuguese bond yields rose 10 bps on
the day to 6.00 percent, while five-year yields
were up 19 bps at 5.10 percent.
Portugal will begin to offer to swap 2014 and 2015 bonds for
bonds maturing in 2017 and 2018 on Tuesday, the IGCP debt agency
"There is a net issuance in bonds in duration because they
buy back short bonds and they issue four and five years," one
trader said, explaining the pressure on Portuguese debt.