* Euro zone yields 2-4 bps higher on day
* Focus back on economic outlook and ECB after French election
* Auctions from Netherlands, Austria also weigh
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices)
By Dhara Ranasinghe
LONDON, May 9 (Reuters) - Borrowing costs across the euro area rose on Tuesday as the outcome to France’s presidential election allowed investors to move on to the prospects for a scaling back of ECB monetary stimulus.
New bond supply from the bloc also put some upward pressure on yields, as did a renewed emphasis on global reflation trades in the wake of ebbing political risks in Europe.
One key driver for higher bond yields is a perception that fading political risk in France after Sunday’s win for centrist Emmanuel Macron could pave the way for the European Central Bank to step back from its ultra-loose monetary policy.
Data on Tuesday showed German industrial production fell by less than expected in March and trade proved resilient, supporting expectations for a robust performance of Europe’s biggest economy in the first quarter.
On Monday, ECB board member Yves Mersch said the central bank was close to replacing its negative view with a neutral one on whether the euro zone economy will reach growth targets, and should adjust its policy guidance accordingly.
“The political issues which were very much in focus are gone for now and the focus is back to the macro outlook,” said DZ Bank analyst Daniel Lenz.
German two-year government bond yields briefly rose to minus 0.64 percent, their highest level since the end of January, while benchmark 10-year Bund yields were 1.5 basis points higher on the day at 0.43 percent, hovering close to six-week highs hit on Monday.
Dutch 10-year bond yields rose to six-week highs around 0.51 percent before falling back to 0.49 percent, still up 2 bps on the day. Southern European bond yields, seen as most vulnerable to a removal of central bank stimulus, were 3-4 basis points higher on the day.
A stock market rally and falling volatility in the wake the French vote also took the shine off bond markets.
On Monday, the VIX index of implied volatility on the S&P 500 - the so-called Wall Street “fear gauge” - fell to its lowest intraday level since December 2006.
“Event risk does seem to be minimal for now so that reflation theme is coming back,” said Orlando Green, European fixed income strategist at Credit Agricole.
Elsewhere, Austria sold 1 billion euros of long-dated bonds, while the Netherlands sold 2.2 billion euros of five-year debt and Germany auctioned inflation-linked bonds.
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
Editing by Alison Williams