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LONDON, March 15 (Reuters) - Rising inflation expectations and political uncertainty triggered a rise in average daily trading volumes in European bond markets in the last quarter of 2016, reversing falls in the previous two quarters, lobby group AFME said on Wednesday.
Average daily volumes in European government bond markets rose 16 percent in the fourth quarter versus the third, the Association for Financial Markets in Europe (AFME) said in its latest bond data report.
That compared with a fall of almost 9 percent in the third quarter of last year and with declines in daily volumes in the final three months of 2015 and 2014.
"Several concurrent factors may have driven the quarterly increase in turnover volumes, including changes in the market environments such as rising inflation expectations, steepening of the yield curve and other country-specific factors, including political uncertainty," AFME said.
Turnover of French government bonds rose 34 percent compared with the previous quarter, driven by trading in November, which saw the highest monthly turnover for two years, AFME said.
Donald Trump's unexpected U.S. presidential election win in November focused investors on votes in Europe this year.
French bonds have taken a beating from concerns that far-right anti-euro candidate Marine Le Pen could deliver another surprise in presidential elections scheduled for April and May.
Japanese investors were net sellers of French bonds for a third month in a row in January, the longest such spell since mid-2011, data from Japan's Ministry of Finance showed last week.
Although trading volumes in European bond markets rose in the fourth quarter of 2016, in annual terms, volumes continued to decline in line with recent years. AFME said average daily trading volumes decreased 7.2 percent during 2016, compared with a fall of 8.4 percent in 2015.
Regulation and massive buying of government bonds by central banks for monetary stimulus have hurt trading volumes in bond markets globally in recent years.
That trend has also contributed to a decline in the number of banks that handle bond deals for governments.
AFME said the average number of primary dealers in the European Union fell to around 18 from around 23 in 2006.
The number of primary dealers decreased in 10 of the 23 EU jurisdictions that have primary dealer systems.
Reporting by Dhara Ranasinghe; Editing by Alison Williams