Euro, bond yields jump on flickers of growth, inflation

LONDON (Reuters) - The euro and German bond yields rose to their highest level in weeks on Wednesday, after data showed that a measure of bank lending across the bloc stopped shrinking in March and consumer inflation expectations rose for the first time this year.

The euro traded above $1.10 and the 10-year German bond yield rose as high as 0.25 percent . Earlier this month, the euro was as low as $1.05 and the Bund yield was just 0.05 percent, threatening to fall below zero.

The rise in European yields kept stocks under pressure and lifted U.S. bond yields. But higher U.S. yields failed to lift the dollar, which was kept in check by the euro's rise ahead of the Federal Reserve's policy statement later on Wednesday.

"Happier days are on the cards," said Timo del Carpio, European economist at RBC Capital Markets.

"The continued improvement in credit supply conditions bodes well for the sustainability of the euro area recovery overall."

Euro zone bank lending to the private sector rose 0.1 percent in March, a tiny rise but the first in three years. Meanwhile, a survey of consumer inflation expectations showed a sharp jump in April.

Both these developments suggest the European Central Bank's 1 trillion euro bond buying stimulus program may be starting to have the desired impact.

The euro rose to a three-week peak of $1.1014, while the German Bund yield hit a 6-week high thanks to its biggest one-day rise since December 2013.

Germany failed to sell the entire 4 billion euros of five-year bonds on offer at auction on Wednesday, another sign investors are turning away from low and negative-yielding assets.

FED DAY

Stocks fell, following Asian stocks lower, while the dollar held near two-month lows ahead of the Fed's decision. The U.S. central bank is expected to show it is in no hurry to raise interest rates.

The Fed wraps up its two-day meeting with the U.S. economy in something of a soft patch - data due later on Wednesday is expected to show growth slowed sharply in the first quarter - that has weighed on the dollar and, in the view of many analysts, pushed back the first U.S. rate rise since 2006.

The dollar index <.DXY>, which measures the greenback against a basket of currencies, fell to its lowest since March 5, despite the rise in the 10-year U.S. Treasury yield over 2 percent for the first time in a month.

European shares gave up early gains to trade slightly lower on Wednesday as investors digested a batch of mixed corporate results from bank BBVA and UK retailer Next , among others. The pan-European FTSEurofirst 300 index <.FTEU3> was down 0.2 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> retreated 1 percent having touched their highest since early 2008 at one point. Trade in Asia was thinner than usual with Japanese markets closed for a holiday.

U.S. futures pointed to a lower open on Wall Street .

On Tuesday, the Dow <.DJI> ended up 0.4 percent, while the S&P 500 <.SPX> rose 0.28 percent and the Nasdaq <.IXIC> dipped 0.1 percent.

The Fed's policy statement is due at 1800 GMT (2.00 p.m. EDT). Before that, data is expected to show the U.S. economy grew at a 1.0 percent annual pace in the first quarter, down from 2.2 percent in the previous three months.

"Investors are approaching (the Fed) with the view it will bore as much as possible. The risk is that what is neutral to the Fed may be surprisingly upbeat to the market," said analysts at Citi.

"We would not see this as a big near-term boost to the dollar and bond yields, but more a reminder that the Fed remains hopeful that data will improve sufficiently for a lift-off in September."

Oil prices fell as oversupply and weak demand outweighed uncertainty over the impact of Saudi King Salman bin Abdulaziz's decision to sack his younger half-brother as crown prince in favor of his nephew.

Brent crude fell to $64.52 a barrel.

Gold traded near three-week highs with the dollar soft. Spot gold last traded at $1,207.51 an ounce.

(Additional reporting by Wayne Cole in Sydney, Francesco Canepa, John Geddie and Anirban Nag in London; Editing by Toby Chopra)

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