UK gilt prices shoot to near 3-week high after lacklustre GDP data

By Andy Bruce

LONDON, May 28 (Reuters) - British government bond prices rose to their highest level in nearly three weeks on Thursday, boosted by lacklustre economic growth data that helped gilts outperform strongly compared with German debt.

The Office for National Statistics confirmed an earlier reading of 0.3 percent growth in the first quarter -- half the fourth-quarter rate -- wrong-footing economists who had been forecasting a small upward revision.

Ten-year gilt yields bottomed at 1.814 percent, their lowest level since national election results came through on May 8 and more than 7 basis points down on the day.

The gilts outperformed their German counterpart, narrowing their spread over German debt by around 4 basis points to a session low of 129.2 basis points.

"The market was skewed very heavily to expecting an upward revision (to economic growth), so there was clearly some disappointment there," said Marc Ostwald, strategist at ADM Investor Services.

Markets currently point to a first rate hike from the Bank of England coming around the second quarter of next year, while economists polled by Reuters this week estimated a hike would come around the first quarter of 2016.

"In terms of the Bank of England, I don't think this data changes much. There's a lot of economic water to flow under the bridge between now and then," said Ostwald.

At 1503 GMT the 10-year gilt yield was down around 5 basis points on the day at 1.84 percent.

Sept long gilt future 117.57 (+0.59)

Sept 2015 short sterling 99.39 (+0.01)

March 2016 short sterling 99.21 (+0.02)

10-year yield 1.84 pct (-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