* Below-forecast Ifo raises concerns over euro zone recovery
* Spanish, Italian yields rise; Bunds near 2-month highs
* Speculation of more central bank easing increases
By Emelia Sithole-Matarise and Marius Zaharia
LONDON, Oct 25 (Reuters) - Italian and Spanish yields rose on Friday, drifting further away from this week’s five-month lows, after Germany’s below-forecast Ifo business sentiment survey raised concern about the euro zone economic recovery.
The business morale index unexpectedly fell for the first time in six months in October.
The report follows weaker-than-expected manufacturing and services sector surveys in the euro zone and the United States on Thursday.
Demand for riskier assets has also been hurt by expectations that a two-week U.S. government shutdown this month will hit growth in the world’s biggest economy.
Italian 10-year yields rose 8 bps to 4.22 percent, off Wednesday’s five-month lows of 4.085 percent.
Equivalent Spanish yields were up 2 basis points at 4.16 percent, having hit a five-month low of 4.107 percent early on Thursday, according to Reuters data.
“The data set was a little bit disappointing overall so its not surprising that periphery spreads are widening a little,” said Ralf Umlauf, an analyst at Helaba Landesbank Hessen-Thueringen in Frankfurt.
“But we still believe there will be an economic upturn in the coming months and quarter in the euro zone but it’s a slow dynamic so (peripheral yield) spreads only have limited potential for tightening.”
German Bund futures rose 19 ticks to settle at 141.06, keeping Thursday’s two-month high of 141.22 in sight.
The reaction to the weaker recent data was muted as investors also weighed the possibility of central bank action.
The Federal Reserve holds its policy meeting next week and is widely expected to delay trimming its bond-buying stimulus programme until early next year to lessen the economic impact of a two-week government shutdown.
Some market participants also expect the European Central Bank to introduce a new round of cheap long-term loans to keep a lid on money market rates, which could rise further as liquidity in the banking system shrinks.
The strength of the euro, trading around two-year highs versus the dollar is an additional worry for the currency bloc, which needs to boost exports to foster the growth that could bring debt levels down to more sustainable levels.
“With an overvalued euro exchange rate threatening to disrupt the hard-won positive effects from normalising market conditions for business confidence, calls for a more expansionary ECB stance, targeting directly money supply growth, are set to get louder,” said G+ chief economist Lena Komileva.
Ultra-easy monetary policies are likely to support both top- and lower-rated assets in the near term, some analysts said.