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LONDON, March 23 (Reuters) - Investors hoovered up banking stocks and the bonds of some of the bloc's weakest countries on Thursday after demand for the final round of ultra-cheap bank loans from the European Central Bank topped expectations.
Some 474 banks took up 233.5 billion euros of four-year loans in the last targeted longer-term refinancing operation (TLTRO), well above the 125 billion euros expected in a Reuters poll, suggesting that banks are keen to stock up on cheap cash in anticipation of a continued rise in lending.
Analysts said government bonds are likely to benefit as banks are expected to invest some of that cash in these assets.
"The talk that this money would be used for carry trades seems to be confirmed by these results and the market reaction," said ING rates strategist Benjamin Schroeder.
Yields, which move inversely to prices, of Portuguese , Spanish and Italian bonds fell after the results and were down 5-7 basis points on the day. That narrowed the gap with German equivalents which were little changed on the day.
An index of European banking stocks hit a session high after the results, up 0.6 percent on day. (Reporting by John Geddie and Helen Reid; editing by Dhara Ranasinghe)