| LONDON, July 1
LONDON, July 1 Italian and Spanish bond yields
dipped on Tuesday before euro zone manufacturing activity data
expected to confirm the bloc's feeble economic growth,
underlining the European Central Bank's ultra-easy monetary
Weak inflation numbers on Monday only served to reinforce
the ECB's unprecedented policy measures last month, though the
fact it did not deteriorate from May's 0.5 percent reading gave
the bank room to hold off on further steps at this week's
Flash Markit manufacturing surveys just over a week ago
showed the euro zone's private sector expansion unexpectedly
slowed last month. The region's biggest economy, Germany,
expanded robustly, although a little more slowly while France's
private sector shrank at the fastest rate in four months.
"The ECB will certainly take this data into account and EMU
inflation remains at a very low level and this rather supports
the dovish tone of the ECB in general but not changing their
view for now," said Christian Lenk, a strategist at DZ Bank.
"This should keep yields subdued but we don't expect much of
a move before Thursday's ECB meeting and also the (U.S.)
Italian 10-year yields were last about 1 basis
point lower at 3.67 percent with Spanish equivalents down a
similar amount at 2.66 percent.
Yields on Portuguese bonds nudged higher, slightly extending
Monday's rise on uncertainty about the country's biggest bank
after Luxembourg's justice authorities launched a probe into
three of its holding companies. The yields were last at 3.69
percent, having bounced off 2005 lows around 2.25
percent hit three weeks ago.
Bond traders said the uncertainty over Banco Espirito Santo,
which were down 6 percent after Monday's 10 percent slide, were
prompting some investors to book profits in Portuguese
government bonds after their recent sharp rally.
"The investigation in Luxembourg is dragging a little bit on
PGBs and some invesots have tatken this an opportunity to take
profits," one trader said.
(editing by Ralph Boulton)