By Anchalee Worrachate Dec. 11 (Bloomberg) -- U.K. two-year gilts fell, sending yields close to the highest level in more than two weeks, as stock-market gains trimmed demand for the perceived safety of fixed income. Ten-year bonds, little changed today, headed for a second weekly decline. A report showed U.K. producer prices rose at the fastest annual pace in nine months last month. The MSCI World Index advanced 0.6 percent as China’s industrial output grew more than economists estimated. Ten-year yields rose by the most since Oct. 21 yesterday on concern that the government isn’t doing enough to reduce borrowing. “Risk appetite remains a major driver in the bond market,” said Robin Marshall, director of fixed income at Smith & Williamson Investment Management in London. “As for the budget, the government will have to take credible steps to address the problem or the market will take action by driving yields higher.” The two-year note yield advanced 3 basis points to 1.20 percent as of 9:54 a.m. in London. It rose to 1.21 percent earlier, within one basis point of the highest level since Nov. 25. The 3.25 percent security due December 2011 fell 0.08, or 80 pence per 1,000-pound ($1,632) face amount, to 104. The 10-year yield was little changed at 3.81 percent. Producer prices rose 2.9 percent in November from a year earlier, compared with a revised increase of 1.9 percent in the previous month, the Office for National Statistics said today in London. The result matched the median forecast of 16 economists in a Bloomberg survey. The pound climbed 0.3 percent to $1.6320, trimming a weekly decline. It was little changed versus the euro at 90.47 pence, set for a drop in the five days. To contact the reporter on this story: Anchalee Worrachate in London at Aworrachate@bloomberg.net

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