* Policy divergence keeps open gap between Bunds, Treasuries
* ECB expected to stay loose despite imminent Fed rate hike
* France 's Macron takes 1st round lead in poll for 1st time
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
(Adds quotes, updates prices)
By Abhinav Ramnarayan
LONDON, March 9 The gap between German and U.S.
government bond yields held near eight-week highs as investors
awaited news from Thursday's ECB meeting, expected to highlight
the monetary policy divergence between the two regions.
Higher-than-expected U.S. private sector employment numbers
on Wednesday boosted already high chances of a rate hike when
the Federal Reserve meets next week and increases the likelihood
of further hikes later in 2017.
But in the euro zone, ECB President Mario Draghi is likely
to resist hawkish calls and maintain an ultra-loose policy
stance despite accelerating inflation, analysts said.
"We expect there will be four (Fed) rate hikes this year.
Against that you have the ECB that's likely to be on hold for
the rest of the year," said Nick Gartside, international CIO of
fixed income, JPMorgan Asset Management.
In a reflection of that sharp contrast in monetary policy,
the gap between the 10-year borrowing costs of Germany and the
United States hit 220 basis points.
This was a shade below an eight-week high hit earlier this
week and only 16 bps below the December 2016 peak of 236 bps,
which was the widest since at least 1990.
"It's a tale of two central banks... so that spread is
likely to remain wide over the coming months," Gartside said.
ING strategists said the central bank in Frankfurt would
look to soothe nerves on Thursday ahead of potentially fractious
elections in the Netherlands and France, though recent polls
have shown momentum for far-right parties abating.
"The ECB will wait to see the political risks out of the way
and convincing signs that underlying inflation is on an upward
trajectory before tightening," said ING strategist Martin van
Euro zone inflation surged to a four-year high of 2 percent
last month, just topping the European Central Bank's target, but
underlying inflation held steady at 0.9 percent.
While German government bond yields were flat on the day,
most other high-rated euro zone bond yields fell 1-2 bps ahead
of the ECB policy decision.
Lower-rated euro zone government bond yields fell 4-6 bps.
The likes of Spain, Italy and Portugal are generally seen as
bigger beneficiaries of accommodative monetary policy than their
The gap between France and Germany's 10-year borrowing costs
narrowed on Thursday after a poll showed that centrist Emmanuel
Macron would beat far-right leader Marine Le Pen in presidential
elections in May.
The yield spread fell 3 basis points to 63 bps on Thursday.
That put it well off the 84 bps it hit early this year - the
highest since late 2012 - on concerns that Le Pen would win and
attempt to take France out of the single currency.
(Reporting by Abhinav Ramnarayan; editing by John Stonestreet)