Gilts steady as strong auction offsets data knock

By Christina Fincher

LONDON (Reuters) - British government bonds shuttled in a narrow range on Tuesday after a well-received gilt auction helped to offset a flurry of data suggesting the worst of the recession may have passed.

A survey from the British Retail Consortium showed retail sales rose at their fastest rate in 3 years in April, while figures from the Royal Institute of Chartered Surveyors showed a marked slowdown in house price falls.

Official figures showed British manufacturing output suffered its smallest monthly fall in more than a year in March and a leading thinktank calculated Britain's economy stabilised in April after a year of falling output.

Even unemployment data -- released a day earlier than scheduled after some figures were accidentally released -- showed fewer Britons joined the dole queue than expected last month.

"The data has been uniformly better than expected," said one London-based trader. "In some ways it's surprising the market hasn't reacted more but yields have been moving higher for a while."

At 2:55 p.m., the June gilt future was two ticks lower at 119.08. The spread between 10-year gilts and Bunds narrowed one basis point to 25 basis points as UK government debt outperformed.

Two-year gilt yields were one basis point higher at 1.16 percent while 10-year yields were unchanged at 3.66 percent.

The long end of the curve outperformed slightly, helped by strong demand at an auction of gilts due 2030. Investors put in bids worth 2.24 times the 2.25 billion pounds of bonds on offer, almost twice the cover seen at the last sale of this gilt in November.