UK gilt yields touch lowest level in 7 weeks

LONDON, March 25 (Reuters) - Ten-year British government bond yields touched their lowest level in seven weeks on Wednesday, pulled down by an unusually low outlook for British inflation and weaker-than-expected U.S. economic data.

The 10-year gilt yield hit a low of 1.444 percent, a level last seen on Feb. 3, following U.S. durable goods data that suggested the world's largest economy has slowed sharply. It recovered later in the session to 1.485 percent, down 2 basis points on the day.

Gilt prices have rallied strongly over the past two weeks, with the 10-year yield dropping by 33 basis points, helping them outperform both German Bunds and U.S. Treasuries .

"There's plenty of different reasons why gilts have done well," said Jason Simpson, strategist at Societe Generale (Paris: FR0000130809 - news) . "It is partly the monetary policy outlook, but I wouldn't be surprised to see cash coming out of Europe as well," he added, noting the extra yield available on gilts compared to Bunds.

British consumer price inflation fell to zero percent last month for the first time on record, according to official data on Wednesday that further dampened expectations that the Bank of England might raise interest rates soon.

Simpson said the market was now pricing in a first rate hike from a record low 0.5 percent around the third quarter of 2016, compared with the first quarter of next year around the time of the BoE (Shenzhen: 200725.SZ - news) 's quarterly economic forecasts in mid-February.

The premium that 10-year gilts offer over the equivalent German Bund briefly touched its lowest level since Feb. 6 at 123.3 basis points, before rebounding to around 126 basis points at 1636 GMT, little changed on the day.

June long gilt future 121.57 (+0.34)

June 2015 short sterling 99.42 (unch)

Dec (Shanghai: 600875.SS - news) 2015 short sterling 99.37 (+0.01)

10-year yield 1.48 pct (-2.5 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 (Reporting by Andy Bruce; Editing by Ruth Pitchford)