4 Min Read
* Optimism on solid growth data counters Draghi's caution
* Spanish economy beats forecasts, Austria, France also grow
* Effect on euro zone inflation key, data due at 0900 GMT
* French-German yield spread steady, Le Pen risk remains low
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Abhinav Ramnarayan
LONDON, April 28 (Reuters) - Euro zone bond yields rose across the board and the euro strengthened on Friday as economic output data from several countries reaffirmed economic strength in the bloc and furthered the case for tighter monetary policy.
European Central Bank chief Mario Draghi struck a cautious note on Thursday, sending yields lower, but numbers out on Friday strengthened the belief that the current ultra-loose policy stance can't last.
Spanish, Austrian and French gross domestic product numbers for the first quarter of the year all pointed towards improving economic prospects in the single currency bloc.
What this means for inflation is key. Euro zone inflation numbers for the month of April are due out at 0900 GMT.
Expectations are for consumer prices to increase 1.8 percent year-on-year, not far from the European Central Bank target of just below 2 percent.
"It is very interesting to see what growth means for inflation, particularly for core inflation which has been quite stable recently," said DZ Bank strategist Daniel Lenz.
Inflation excluding energy and unprocessed food - known in the market as core inflation - has been between 0.7-0.9 percent over the last six months.
"In spring, you have talks between employers and unions in many euro zone countries and if we have pay rises after years of stagnation in salaries, there could be a sharp upward move (in core inflation)," he added.
The Spanish economic output numbers released Friday were particular eye-catching. The economy expanded by 0.8 percent quarter-on-quarter and 3 percent year-on-year in the January-to- March period, outpacing expectations.
Austria and France also saw their economies expand over the same period, even if the latter figure was slower than expected.
The corresponding figure for Belgium is due out at 1300 GMT, with a Reuters poll suggesting growth of 0.4 percent over the preceding quarter.
Euro zone bond yields rose 1-2 basis points across the board. The yield on 10-year German debt, the benchmark for the region, was up 2 basis points to 0.32 percent.
The single currency also strengthened, rising 0.1 percent against the dollar to $1.0885.
On Thursday, euro zone government bond yields tumbled and the euro hit session lows after European Central Bank chief Mario Draghi said policymakers did not discuss removing the bank's easing bias on monetary policy at Thursday's meeting.
Political concerns have largely kept high-grade euro zone bond yields in check, particularly ongoing French presidential elections and threat of a victory for anti-euro far-right leader Marine Le Pen.
But with centrist Emmanuel Macron taking the lead in Sunday's first round, that possibility has largely decreased, allowing the market to focus on monetary policy rather than politics.
A poll on Thursday had Macron winning the second round on May 7 by 60.5 percent to 39.5 percent.
The gap between France and Germany's 10-year borrowing costs - a key measure of French political risk - was steady at 46 bps on Friday, off Monday's lows but well below last Friday's close of 62.5 bps.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Reporting by Abhinav Ramnarayan; Editing by Tom Heneghan