4 Min Read
* Euro zone core inflation hits four-year high, yields rise
* Spanish economy beats forecasts, Austria, France also grow
* French-German yield spread steady, Le Pen risk remains low
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices, adds U.S. data)
By Abhinav Ramnarayan
LONDON, April 28 (Reuters) - Euro zone government bond yields and the euro rose on Friday after inflation numbers beat expectations for the month of April and data pointed to a brightening economic outlook for the single currency bloc.
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 ultra-loose policy stance cannot last.
Euro zone consumer inflation rose to 1.9 percent in April, beating forecasts of 1.8 percent, and close to the ECB's target of just below 2 percent.
Even more strikingly, the figure after stripping out energy and processed food prices - known in the market as "core inflation" - hit a four-year high of 1.2 percent, after being stuck in a 0.7-0.9 percent range for the six months before.
"The ECB has been looking through fluctuations in the headline inflation rate and looking at core inflation - but even that seems to be going in the right way," said DZ Bank strategist Christian Lenk. "The big question is how sustainable this is going to be."
Inflation numbers added impetus to a bond sell off that began early in the session after some positive economic output data from several euro zone countries.
The Spanish gross domestic product numbers released on Friday were particularly 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.
Data in the U.S. meanwhile showed the economy in the first quarter grew at its slowest pace in three years, but indicated a more buoyant inflation and employment picture.
In late trade, the yield on 10-year German debt , the benchmark for the region, was up 2 basis points at 0.32 percent. It was on track for its biggest weekly rise since early March with a rise of about 7 bps.
Other euro zone bond yields were 2-7 bps higher on the day.
The single currency also strengthened and was last trading 0.2 percent higher at $1.0895.
The euro zone bank index extended gains, while the index of the bloc's 50 biggest stocks turned flat after initial gains.
On Thursday, euro zone government bond yields tumbled after 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 and Pritha Sarkar