* ECB leaves rates unchanged, may uses other measures
* Diplomatic talks in Ukraine also weigh on safe-haven debt
* Economic optimism boosts Greek bonds
By Joshua Franklin
LONDON, March 6 (Reuters) - German government bond yields rose on Thursday, led higher by the European Central Bank’s decision to keep interest rates on hold and as talks to resolve the crisis in Ukraine dampened demand for safe-havens.
The ECB left rates unchanged in the face of uncomfortably low inflation, wrong-footing a minority in markets who had expected a cut.
But ECB President Mario Draghi may use a news conference at 1330 GMT to unleash other measures to pep up a fragile euro zone recovery, such as ending the so-called sterilisation of bond purchases under the its Securities Markets Programme (SMP).
“There’s still a possibility that (Draghi) will announce some measures on the liquidity side which are usually not announced before the press conference,” said Piet Lammens, a strategist at KBC in Brussels. “So there might be some non-sterilisation of the SMP programme which people talk much about recently.”
German 10-year Bund yields, the benchmark for euro zone borrowing costs, rose 4 basis points to 1.65 percent.
Talks to resolve the crisis in Ukraine were seen easing tensions and they also dragged on Bunds. Although high-level talks on the Ukraine crisis made little apparent headway on Wednesday, the diplomatic efforts were due to continue on Thursday.
Elsewhere, junk-rated 10-year Greek bond yields hit near-four year lows on Thursday, driving them below those on 30-year debt for the first time since late 2013.
Greece is emerging from a six-year recession and recorded a primary budget surplus in January. The improved outlook helped Greek yields to their lowest since the country’s debt was restructured in March 2012.
“In general, the story around Greece is clearly improving. There’s indications of momentum within the economy. The primary surplus has come through earlier than anticipated,” said Mark Wall, chief euro area economist at Deutsche Bank.
Greek 10-year yields slid 21 basis points to 6.65 percent, while 30-year yields were 13 bps down at 6.69 percent. This moved the curve back to a more normal upward slope, a sign of investor confidence.
In well-bid debt auctions on Thursday, Spain hit the top of its target range, raising 5 billion euros, while France sold just short of 8 billion euros worth of bonds.
Spanish 10-year yields were up 1 bps, while the higher-rated French equivalent rose by 5 bps.