Booming euro zone businesses push yields higher before ECB meeting

* ECB to keep taps open while China, U.S. tighten policy

* German 10-year yields rise at 0.31 pct, near lows

* South European yields rise before Spanish auction

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Writes through)

By Abhinav Ramnarayan

LONDON, Dec (Shanghai: 600875.SS - news) 14 (Reuters) - Euro zone government bond yields rose on Thursday as further signs of economic strength in the bloc added to pressure on ratesetters ahead of a European Central Bank meeting.

The ECB is widely expected to play down euro zone economic strength at the meeting and keep the stimulus taps flowing, but the market is watching the central bank's growth and inflation forecasts.

Any upgrade in those would likely add to pressure on policymakers to end post-crisis stimulus sooner rather than later.

"Today's ECB meeting is all about the economic projections," said Nick Gartside, international chief investment officer for fixed income at JP Morgan Asset Management, one the world's largest investors.

"If you go into next year with the economic momentum building, at some point the market will ask: hang on, given we have such a strong growth outlook, is the current level of stimulus really appropriate?"

IHS Markit (Stuttgart: A1139A - news) 's Purchasing Managers'Index (PMI) for the euro-zone on Thursday showed that businesses across the bloc were ending 2017 on a near seven-year high.

This pushed euro zone yields higher 1-3 basis points across the bloc.

German 10-year bond yields, the benchmark for the region, rose 2 bps to 0.33 percent.

The world's two largest economies, the United States and China, both tightened policy overnight, but the ECB, while likely to bump up some of its economic forecasts on Thursday, is expected to leave its stimulus in place.

"We think (ECB President Mario) Draghi will be at pains to downplay the significance for monetary policy of higher growth and inflation next year," Mizuho strategists said in a note.

They expect the "lacklustre" performance of European government bonds in recent times to reverse as this happens.

Recent data showed the euro zone economy grew by more than the United States year-on-year in the third quarter.

That juxtaposition is particularly striking as the U.S. has been systematic in tightening monetary policy.

On Wednesday, the Federal Reserve raised interest rates by 25 basis points as expected and left its rate outlook for the coming years unchanged, though policymakers projected a short-term jump in U.S. economic growth from the Trump administration's proposed tax cuts.

China's central bank on Thursday nudged up money market rates as authorities sought to defuse financial risks without imperilling the economy.

In relative terms, a sell-off in Italian debt cooled. The country's 10-year borrowing costs had registered their biggest one-day rise since July on Wednesday after reports that March 4 has been chosen as the date for national elections.

Spain sold 3 billion euros of four-year, 10-year and 15-year bonds in an auction.

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(Reporting by Abhinav Ramnarayan, Additional reporting by Fanny Potkin; Editing by Jon Boyle)