By Marius Zaharia
LONDON, June 8 (Reuters) - German Bund yields rose on Monday after better-than-expected industrial output figures from the euro zone powerhouse improved its growth outlook, keeping the battered government bond market under pressure.
German industrial output rose by 0.9 percent in April, overshooting analysts' expectations in a Reuters poll for a rise of 0.5 percent. Exports also grew faster than expected.
Improving growth prospects and easing fears of deflation in the single currency bloc have been among the drivers behind a sharp rise in Bund yields from near zero in mid-April to just below 1 percent last week.
"The European economy seems to have entered a virtuous cycle," said Vincent Juvyns, global market strategist at J.P. Morgan Asset Management.
There are signs that the sell-off might be losing momentum, however. On Friday, better-than-expected U.S. non-farm payrolls data pushed yields slightly higher initially, but that move was short-lived and, by the end of the day, 10-year Bund yields had fallen 10 basis points below their highs.
Bund yields rose as high as 0.90 percent after Monday's data, before pulling back to 0.88 percent, 4 basis points higher on the day.
The post-payrolls reaction in Bunds was "a signal that the quite sharp, volatile moves that we've seen in the past weeks might be over at least for now," said KBC rate strategist, Mathias van der Jeugt.
Last week's bond sell-off came even as the European Central Bank increased the pace of its purchases for a third consecutive week. The bank said on Monday it had settled a total of 159,600 billion euros of purchases of mainly sovereign bonds as of June 5, up from 146.679 billion euros a week earlier.
Spanish and Italian 10-year yields were a touch higher at 2.24 percent and 2.25 percent, respectively.
Irish yields rose 7 bps to 1.71 percent as investors made space in their portfolios for a 750 million euro, 15-year bond auction on Thursday.
Standard & Poor's raised Ireland's rating for the third time in 12 months on Friday. The country is now rated A+, reaping the rewards of cutting its debt pile and budget deficit and being the European Union's fastest-growing economy.
Top-rated government bonds did not benefit from the Greek crisis in a sign that an asset loses its safe-haven appeal when interest rates approach zero. Athens and its creditors still looked far apart in talks to reach a cash-for-reform deal to stave off a Greek default.
The European Union's exasperation with Greece burst into the open on Sunday when its chief executive rebuked leftist Prime Minister Alexis Tsipras and said time was running out to conclude a deal to avert default.
"(A deal) will probably be neutral for other European government bonds, on the basis that the safe haven status of the likes of Bunds seems to have disappeared recently," said Gary Jenkins, chief credit strategist at LNG Capital. (Editing by Catherine Evans)