By Paul Dobson Jan. 6 (Bloomberg) -- German 10-year government bond yields stayed within 6 basis points of a three-month high after Europe’s largest economy sold 4.9 billion euros ($7 billion) of the securities. Bunds fell earlier as Markit Economics confirmed Europe’s services and manufacturing industries expanded in December at the fastest pace in more than two years. Stocks rose, sending the Dow Jones Stoxx 600 Index 0.1 percent higher. German debt pared losses as demand at the auction matched previous sales. “There’s a lot of uncertainty about the economic outlook and there’s a lot of supply due this year,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd. “The auction went pretty well and that’s giving good support to the bond market.” The yield on the 10-year bund was little changed at 3.37 percent as of 11:10 a.m. in London. The 3.25 percent security due January 2020 slipped 0.02, or 20 euro cents per 1,000-euro face amount, to 98.96. The two-year note yield fell 1 basis point to 1.27 percent. The German government sold 3.25 percent 10-year bonds at an average yield of 3.38 percent, the Bundesbank said today. The so-called bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 1.6, in line with the average of the previous three auctions. Governments are offering record amounts of debt to fund stimulus measures following the worst recession since World War II. European governments will sell 100 billion euros of bonds this month alone, part of almost 1 trillion euros to be auctioned in 2010, according to ING Group NV. France plans to sell as much as 9 billion euros of debt tomorrow. Bund Yield The bund yield is close to a three-month high on growing signs that the economic recovery is taking hold. German unemployment fell for a sixth month in December, the government said yesterday. The European Union’s statistics office also said yesterday that prices in the 16-nation euro region rose an annual 0.9 percent in December, compared with a 0.5 percent increase in November. A composite index based on a survey of purchasing managers in services and manufacturing in the 16-nation euro region increased to 54.2 from 53.7 in November, London-based Markit Economics said today. That matched an initial estimate published on Dec. 16 and was the highest since October 2007. A reading above 50 indicates expansion. “The economic situation has improved,” Il Sole 24 Ore cited European Central Bank Executive Board member Juergen Stark as saying. “Data is influenced by a recovery in exports but also an improvement on equity markets and by stimulus measures taken by countries to help the economy,” Stark told the Italian newspaper in an interview published today. Europe’s economy bottomed out between April and June last year and there is no concern at this moment about deflation, French central bank Governor Christian Noyer was quoted as saying in an interview with the Nikkei newspaper. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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