(Recasts, adds Wall Street outlook)
By Natsuko Waki
LONDON, May 15 (Reuters) - Two-year euro zone bond yields
hit a four-month high on Thursday after data showed the region
grew more strongly than expected in the first quarter, while
European stocks steadied after an early sell-off.
The 15-nation bloc's economy grew 0.7 percent in the
January-March period from the previous quarter for a 2.2 percent
annual rise. Amongst national data, Germany offered a
blockbuster reading -- its economy expanded 1.5 percent in the
first quarter, the strongest growth since 1996.
Separate data showed euro zone inflation eased in April to
3.3 percent from an all-time peak of 3.6 percent in March.
Analysts say growth data, although not forward-looking,
showed the region's economy, especially in Germany is holding up
in the face of a strong euro and the credit turmoil which
started in August.
"It is quite a sensation that growth has come out so
strongly," said Ulrike Kastens, economist at private bank Sal.
Oppenheim.
Two-year euro zone government bond yields rose as high as
4.016 percent <EU2YT=RR>, their highest since January. Euro zone
interest rate futures are beginning to price in a slim
possibility of an interest rate hike from the current 4 percent.
The FTSEurofirst 300 index <> reversed losses to stand
up 0.03 percent on the day, while MSCI main world equity index
<.MIWD00000PUS> rose 0.2 percent, boosted by Asian stocks which
cheered benign U.S. inflation data out on Wednesday.
The euro initially benefited from strong German data but
quickly quickly erased gains to stand down slightly on the day
at $1.5476 <EUR=>. The June Bund future <FGBLM8> was down 73
ticks as safe-haven flows diminished.
But even with Thursday's good news, few believe the euro
zone will emerge unscathed from a U.S. economic slowdown.
Trouble in the banking sector, reeling from the nine-month-old
credit crisis, threatens to hit lending and weigh on consumer
confidence.
"The shadow of Goldilocks, long pronounced dead, has briefly
been spotted again somewhere close to Frankfurt...
Unfortunately, this benign 'not too hot, not too cold' set of
data won't last long," Holger Schmieding, economist at Bank of
America, said in a note to clients.
"Upcoming data will likely show a - hopefully temporary -
collapse in GDP growth and a spike in head line inflation to a
new record instead."
U.S. stock futures were up 0.2 percent <SPc1>, pointing to a
stronger start on Wall Street which has a slew of earnings from
key retailers such as JC Penney <JCP.N> along with tech giant
Hewlett-Packard <HPQ.N>.
Emerging sovereign spreads <11EMJ> tightened 1 basis point
while emerging stocks <.MSCIEF> rose 0.7 percent.
The dollar was steady on the day <.DXY> against a basket of
six major currencies.
U.S. light crude oil <CLc1> rose 0.7 percent to $125.03 a
barrel having hit an all-time high near $127 on Tuesday.
Gold <XAU=> ticked higher to $866.00 an ounce.
