* Greek yields fall for sixth straight session
* Greek industrial output up for first time in six months
* Portugal 10-year bond yields rise before planned debt sale
By Joshua Franklin and Emelia Sithole-Matarise
LONDON, Feb 10 (Reuters) - Greek yields fell close to one-month lows on Monday, as positive economic data in the euro zone’s most battered economy fuelled expectations it will return to growth this year.
Industrial output rose for the first time in six months in December - the latest in a string of indicators suggesting the country’s six-year economic slump may be over.
Greek yields dropped for a sixth consecutive session. The upbeat numbers followed news last week that Athens and foreign leaders appeared to have resolved differences over a potential fiscal gap, easing the way for talks over more bailout funds.
“These issues that have been hanging over Greece for several months concerning the financing and fiscal gaps look a lot more encouraging,” said Ben May, European economist at Capital Economics.
Greek 10-year yields fell 14 basis points to 7.76 percent, outperforming euro zone peers albeit in thin trading. Thirty-year yields were 13 bps lower at 7.46 percent .
However, with a debt-to-GDP ratio of around 175 percent - well above the euro zone average of 110 percent - questions remain over the fundamental strength of Greece’s economy. The fact that 10-year bonds were yielding 25 bps more than longer-dated paper reflected investor concern about Athens’s ability to repay them in full.
“I don’t think we are by any means over the worst in terms of Greece,” said Alan McQuaid, chief economist at Merrion Stockbrokers.
“The yields are attractive here but it’s much more volatile and much more risky than Portugal. I don’t expect it to be a straight downward line (in Greek yields) from here.”
Monthly unemployment figures for November, out on Thursday, present investors with their next chance to judge Greece’s recovery. The jobless rate for October was 27.8 percent.
Elsewhere, Portuguese yields rose 3 bps to 5.02 percent as traders braced for a sale by syndication this week of a 10-year bond. Portugal mandated Barclays, BES, Citi, Credit Agricole, RBS and Societe Generale joint leads for the tap of its 5.65 percent 2024 bond, IFR, a Thomson Reuters service, reported.
Sunrise Brokers strategist Gianluca Ziglio said he expected demand for the bonds to be high given the relatively high potential returns on offer.
“The level of yield is still attractive, it’s still yielding 5 percent so compared to the other peripherals it’s doing quite well,” he said, adding he expected the sale to go well.
Portugal received orders for 11 billion euros of five-year bonds in a syndication last month, eventually raising 3.25 billion euros in the sale.