UK gilt prices gain with Bunds after weak German inflation data

LONDON, Oct 30 (Reuters) - British government bond prices gained moderately on Thursday, tracking Bunds higher after data showed German inflation slowed unexpectedly in October and Spanish consumer prices fell.

At 1630 GMT, the 10-year gilt yield was last down around 4 basis points on the day at 2.22 percent.

Around half of that fall came early in the session after the release of inflation data from individual German states.

German inflation nationwide slowed to 0.7 percent in October from September's 0.8 percent, confounding expectations for a slight increase. Falling consumer prices in Spain added to worries that deflation risk in the euro zone has not yet abated.

"(The gilt market) has been more driven by the German inflation. Gilts started rallying after nine o'clock (0900 GMT), after the numbers were released. They're tracking more closely Bunds rather than Treasuries," RBC strategist Vatsala Datta said.

Vatsala added that general risk aversion had also boosted gilt prices on Thursday, as global stocks were in decline until near the end of European trading hours.

The yield premium offered by 10-year gilts over the equivalent German Bund briefly widened to a new three-week high of 137.9 basis points, around 2 basis points higher on the day. It was last at 137.5 basis points.

The two-year gilt yield hit a two-week low of 0.606 percent shortly after the session opened, although it was last flat on the day at 0.64 percent.

Dec long gilt future 115.33 (+0.26)

Dec 2014 short sterling 99.42 (-0.01)

June 2015 short sterling 99.21 (-0.01)

10-year yield 2.22 pct (-4 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 A list of all the strippable British gilts

(Reporting by Andy Bruce; Editing by Catherine Evans)