Euro zone bond yields and euro fall after ECB hikes rates

LONDON (Reuters) - Euro zone government bond yields fell along with the euro on Thursday after the European Central Bank raised interest rates by 25 basis points (bps), as expected.

The two-year German yield, which is sensitive to interest rate expectations, was last down 10 bps to 2.58%, its lowest level in a month, compared to 2.683% before the decision. Yields move inversely to prices.

Germany's 10-year bond yield was last roughly flat at 2.253%, having traded 3 bps higher at 2.283% just before the decision.

The ECB raised its main rate to 3.25% from 3%, meaning it has now carried out 375 bps of increases since July.

Investors had been broadly expecting the move, although some had expected a bigger 50 bp increase.

The central bank also said it would stop reinvesting cash from maturing debt in its 3.2 trillion euro Asset Purchase Programme from July.

The euro fell after the decision and was last down 0.38% at $1.102.

The pan-European STOXX 600 trimmed some losses but was still down 0.5% on the day.

"They obviously scaled down the size of the move but the message has not changed much from March," said Marchel Alexandrovich, European economist at Saltmarsh Economics.

"The message the ECB is trying to send to the markets is that they have more work to do. This is not a repeat of what we saw from the Fed yesterday. They will raise rates again."

(Reporting by Harry Robertson; editing by Danilo Masoni, Kirsten Donovan)