German yields dip as U.S. data dents Fed rate hike talk

(Writes through)

By John Geddie and Dhara Ranasinghe

LONDON, May 26 (Reuters) - Europe's benchmark German bond yield nudged down on Thursday, giving up an earlier rise after U.S (Other OTC: UBGXF - news) . data showed weakness in business spending plans and dented talk of a near-term rise in U.S. interest rates.

Orders for long-lasting U.S. manufactured goods jumped 3.4 percent in April on strong demand for transportation equipment and a range of other products, but continued weakness in business spending plans suggested the manufacturing rout was far from over.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for the outlook for business spending, fell 0.8 percent after slipping 0.1 percent the prior month.

"The U.S. durable goods data was not as good as expected so we've had a small correction in core government bond yields," said Cyril Regnat, a fixed income strategist at Natixis (LSE: 0IHK.L - news) . "On a global basis, German bonds remain resilient."

The German 10-year bond yield was down about 1 basis point in late trade at 0.14 percent and within sight of a recent one-month low of 0.10 percent.

The yield had risen earlier in the day as oil prices cleared $50 for the first time in 2016 and raised the prospects of a future boost to the bloc's near-zero inflation.

Higher oil prices should help push up euro zone inflation - currently still in negative territory - later this year, and could see the ECB revise up its staff forecasts for consumer price growth at its meeting on June 2.

The ECB slashed its inflation outlook in March based on estimates for Brent crude averaging about $35 a barrel this year. Since then, the price of oil has risen more than 20 percent.

An important market gauge for long-term inflation often cited by the ECB - the five-year, five-year forward rate - climbed back up to 1.50 percent on Thursday but is still well below the ECB's inflation target of near 2 percent.

Economists polled by Reuters were unanimous in expecting the ECB to hold policy steady at its meeting next Thursday, June 2, and a slim majority do not anticipate the ECB easing again this year.

Even (Taiwan OTC: 6436.TWO - news) when the economic environment and monetary stimulus from the ECB are taken into consideration, 10-year yields in the euro area should be at least 70 bps above where they are now, analysts at UBS (LSE: 0QNR.L - news) said in a note on Thursday.

Attention was expected to turn back to the U.S. on Friday, when Federal Reserve Chair Janet Yellen is due to speak.

Dallas Federal Reserve Bank President Robert Kaplan said on Wednesday he would support raising interest rates in the "near future," though a vote by Britain on whether to leave the European Union will weigh on any Fed rate decision in June. (Editing by Tom Heneghan)