By Paul Dobson Nov. 24 (Bloomberg) -- European government bonds were little changed after a report showing a rise in German business confidence countered concern that banks will need to raise additional capital. The yield on the 10-year German bund traded within 2 basis points of a three-week low after the Frankfurter Allgemeine Zeitung reported WestLB AG may be shut down by Nov. 30 unless a solution for its capital requirements can be found. Bonds pared gains after the Ifo institute in Munich said that its business- climate index, based on a survey of 7,000 executives, increased more than forecast to 93.9, from 92 in October. “Once again data has been stronger than expected and that’s restraining the upside,”, said Christoph Rieger, co-head of fixed-income strategy in Frankfurt at Commerzbank AG. “It confirms our suspicion that we could be in for quite a resilient fourth quarter.” The yield on the 10-year bund was little changed at 3.26 percent as of 11:43 a.m. in London, after earlier dropping to 3.24 percent, the lowest level since Nov. 3. The 3.25 percent security due January 2020 rose 0.1, or 1 euro per 1,000-euro ($1,495) face amount, to 99.91. The yield on the two-year note fell 2 basis points to 1.32 percent. European bonds fell yesterday after a report showed manufacturing and services industries expanded for a fourth month in November, adding to evidence the region’s economic recovery is taking hold. German gross domestic product rose 0.7 percent in the third quarter from the second, the Federal Statistics Office in Wiesbaden said today, confirming an initial estimate. Japanese Stocks Japanese stocks including Sumitomo Mitsui Financial Group Inc. fell after the Nikkei newspaper said the country’s banks are preparing a new round of share sales. Lloyds Banking Group Plc, the U.K.’s biggest mortgage lender, plans to raise a record 13.5 billion pounds ($22.3 billion) in the country’s biggest rights offering by selling shares at a 59.5 percent discount. The German Finance Ministry said today it’s in talks with WestLB about a rescue. The need for European banks to strengthen balance sheets may restrict economic recovery by limiting funds for small companies and households, Standard & Poor’s said in a report yesterday. “Concerns about the fate of the banking sector will lead investors to seek the safety of the fixed-income bond universe,” said Kornelius Purps, a strategist in Munich at UniCredit SpA. “The banking crisis is with us again today.” Netherlands Sale The Netherlands sold 200 million euros of 2018 bonds with an average yield of 3.355 percent, and 350 million euros of 2015 notes at an average yield of 2.753 percent. Germany will sell as much as 5 billion euros of 5-year notes tomorrow. Italy plans to auction 2.5 billion euros of zero- coupon notes due in September 2011 tomorrow. It will sell 4.25 percent 2020 bonds on Nov. 27. The difference in yield, or spread, between Greek 10-year government bonds and German bunds widened to 174 basis points, the most since June 26. German government bonds have returned 0.35 percent this month and 0.37 percent since the end of September, according to Merrill Lynch indexes. They have advanced 2.2 percent since the start of the year. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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