Gilt prices hit two-week low after U.S. jobs data

LONDON, Feb 4 (Reuters) - British government bond prices hit an almost two-week low on Wednesday, sinking with U.S. Treasuries after a report showed U.S. private employers continued to steadily add jobs in the world's largest economy.

The latest ADP jobs survey of U.S. private sector employers showed the addition of 213,000 jobs in January, consistent with a view in the market that the U.S. Federal Reserve could hike interest rates around mid-year.

That boosted major global government bond yields, including British debt.

The 10-year gilt yield hit its highest level since Jan. 22 at 1.543 percent at 1334 GMT. It settled back to 1.538 percent, up 7.5 basis points on the day.

Trading in gilt futures spiked around the release of the ADP jobs survey of U.S. private sector employers, which showed the addition of 213,000 jobs in January, lower than forecast but consistent with a steady labour recovery.

Gilts showed little immediate reaction to positive British and euro zone purchasing managers' indexes (PMIs) earlier on Wednesday although the signs of continued strength in the British economy contributed to the afternoon's gilts sell-off.

"It's just a combination of being dragged lower by the U.S., and there's the PMI data," said Marc Ostwald, strategist at ADM Investor (Other OTC: IVSBF - news) services.

"The data in the UK has not been as strong as it was. However, you are still looking at an economy that for the time being is ticking along at a decent pace," he added.

Ostwald said that with British inflation probably on course to turn negative in the coming months, the Bank of England is unlikely to hike interest rates until the fourth quarter at the very earliest, or perhaps next year.

The premium that 10-year gilts offer over the equivalent German Bund widened out to its highest level since Jan. 5, hitting a day's high of 117.5 basis points, up around 5 basis points on the day.

Earlier on Wednesday, Britain attracted bids worth 2.37 times the 1.2 billion pounds it sold of the 0.125 percent index-linked 2024 gilt - the strongest demand for a British linker auction since Dec (Shanghai: 600875.SS - news) . 11.

"It was very well subscribed," said Ostwald, adding investors may have sold longer-dated linkers to buy the 2024 bond, given steep price falls in recent days for some of the longest-dated linkers, like the 2068 bond.

March long gilt future 121.86 (-0.76)

June 2015 short sterling 99.37 (unch)

Dec 2015 short sterling 99.23 (-0.02)

10-year yield 1.54 pct (+7.5 bps)

-------------------KEY MARKET DATA--------------------------- Long Gilt futures Gilt benchmark chain Short Stg futures Cash market quotes Deposit rates Sterling cross rates UK debt speedguide -------------------KEY MARKET REPORTS-------------------------- Gilts Sterling Euro Debt Dollar U.S. Treasuries Debt reports --------------------GILT STRIPS DATA ------------------------- Gilt strips data All gilt strips Gilt strips IO Gilt strips PO (Reporting by Andy Bruce; Editing by Tom Heneghan)