S.Korea bonds rally after Europe's rate cuts

SEOUL, March 6 (Reuters) - South Korean government bonds rallied early on Friday as Europe's rate cuts fanned hopes for another policy easing by the Bank of Korea next week, offsetting the won's sharp fall and a build-up of tensions with North Korea.

The European Central Bank and the Bank of England cut interest rates to record lows on Thursday to battle a global recession, a move that dealers said should give more leeway for another domestic rate cut as early as next Thursday. [ID:nN05336400]

The yield on 5-year treasury bonds KR5YT=KSDA fell 7 basis points to 4.60 percent while March treasury bond futures KTBc1 rose 19 ticks to 111.79 as of 0102 GMT.

North Korea raised regional tensions in recent weeks by threatening to attack the South and preparing its longest-range Taepodong-2 missile for a launch.

On Thursday, North Korea also made threats against South Korean commercial airliners that fly near its territory during U.S.-South Korean military drills next week, ratcheting up tensions with its neighbour.

(Reporting by Seo Eun-kyung; Editing by Jacqueline Wong)