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* Fed rate hike expectations grow as ECB stays on loose path
* "Transatlantic" spread at 211 bps as euro zone yields fall
* France and Spain to sell up to 12bn euros of bonds
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
LONDON, Feb 16 (Reuters) - The spread between U.S. and German benchmark government bond yields were close to one-month highs on Thursday as the central banks of the two regions diverge on policy and political risks in Europe keep a lid on yields.
Expectations for a Fed rate hike potentially as early as next month have grown after hawkish comments from policymakers and data on Wednesday showing U.S. inflation recording its biggest gain in nearly four years.
These expectations have been pushing U.S. Treasury yields higher. Though German benchmark government bond yields, which normally move in sympathy with U.S. equivalents, also rose, the gap between the two is at 211 basis points, just 2 bps off one-month highs hit on Wednesday.
"The consolidation in the transatlantic spread has ended with the hawkish talks from the U.S.," said DZ Bank strategist Daniel Lenz. "Meanwhile tapering talk in Europe has faded with the ECB stating that it is not on the agenda and political risks keeping it from rising too much."
This has meant that while the yield on Germany's 10-year government bond, the benchmark for the region, has risen steadily since hitting its September trough of minus 0.16 percent, trading has been choppy.
On Thursday, for example, it fell 1 bp to 0.375 percent, coming off one-week highs hit on Wednesday. Most other euro zone bond yields were also down 1-2 basis points.
"We have shifted to a new range on Bund yields, but there is still a lot of uncertainty and (European) markets are trying to figure out what to filter through from the Fed," said ING strategist Benjamin Schroeder.
The U.S.-German bond yield spread has been noticeably wider since the election of Republican Donald Trump as U.S. President fuelled expectations of higher growth and inflation in the world's richest country.
"Political issues are driving a wedge between U.S. Treasuries and 10-year Bund yields," said Schroeder.
Upcoming elections in the Netherlands, France, Germany and possibly Italy, have kept investors interested in "safe" government bonds particularly with anti-euro and anti-EU sentiment on the increase throughout the continent.
Markets will get a better idea of the degree of divergence between the two central banks later on Thursday when the European Central Bank publishes the minutes of its January meeting.
Consumer prices in the single currency bloc rose 1.8 percent in January, close to the ECB's target of just below 2 percent, ramping up the pressure on the central bank to reverse its ultra-loose policy stance.
But ECB President Mario Draghi has been at pains to stress that the data may be a one-off, fuelled by an increase in commodity prices, and that the euro zone still needs monetary policy support.
"The ECB minutes should provide more minutes on the extent of any hawkish dissent," Mizuho analysts said in a note.
Spain and France are due to sell bonds via auctions later on Thursday, with total supply from the pair potentially as high as 12 billion euros, according to Mizuho.
Reporting by Abhinav Ramnarayan; Editing by Toby Chopra