By Emelia Sithole-Matarise
LONDON, Dec 5 (Reuters) - German yields hit seven-week highs on Thursday after the European Central Bank gave no hints further policy easing was imminent and as strong U.S. data bolstered bets the Federal Reserve could cut its stimulus soon.
The ECB kept its main interest rate unchanged at a record low 0.25 percent and said inflation would stay below target for the next two years. Draghi said the bank was ready to act if necessary to lift tepid growth but no interest rate cuts were proposed at the bank's last policy meeting of the year, disappointing some in the market who had expected a signal on further easing.
German yields rose as much as 6 basis points to 1.86 percent , their highest since Oct. 18, accelerating an earlier rise triggered by forecast-beating U.S. third quarter growth and a fall in jobless claims for a third straight week.
A batch of upbeat U.S. economic numbers this week have added to expectations that the Fed might trim its bond purchases earlier than March. U.S. non-farm payrolls on Friday could be decisive for the Fed's policy stance at its Dec. 17-18 meeting.
'On both sides of the Atlantic things look a bit shaky. The tail risk of an earlier-than-March taper has been raised by the recent batch of data,' said Commerzbank strategist David Schnautz.
'(With) tomorrow's NFP ... the pieces of the puzzle are falling into place and we can't rule out a taper in December or January.'
With German 10- and 2-year yields back at levels seen in the weeks before the ECB's surprise November interest rate cut, Schnautz said the ECB had missed an opportunity to offset some of the upward pressure on yields fuelled by the Fed outlook.
'NO SMOKING GUN'
Euribor interest rate futures fell across the 2014-2017 strip, as money market participants trimmed bets of imminent policy measures from the ECB.
Other euro zone bond yields also rose, with 10-year Italian yields up 11 bps at 4.26 percent and Spanish equivalents 8 bps higher at 4.28 percent.
'There is no smoking gun for more ECB activism and so froth in the market has to come off,' RBS strategists said in a a note, citing the lack of new liquidity measures, an ECB GDP projection of 1.5 percent for 2015 which they said was 'punchy' and inflation forecasts underlining only a temporary dip.
German Bund futures shed 42 ticks to settle at 139.96, having marked their biggest one-day loss on Wednesday after an upbeat U.S. ADP private sector jobs report prompted bets Friday's more comprehensive labour report could be strong.
The non-farms employment report is expected to show an increase of 180,000 after a 204,000 rise in October, according to a Reuters poll of economists.
(Editing by Ruth Pitchford) Keywords: MARKETS BONDS/EURO
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