Gilts rise on suggestion of more QE, weak UK services

By Li-mei Hoang LONDON, Feb 27 (Reuters) - British government bonds rose on Wednesday after a top central banker said more gilt purchases over a longer period than before might be needed to help Britain's economy. Official data showing that output in the nation's dominant service sector shrank 0.4 percent in December compared with November added to background support for gilts, as it pointed to continued economic weakness in the first quarter of this year. At 1240 GMT, the March gilt future was 38 ticks higher at 117.82, while the equivalent Bund future was 28 ticks higher on the day. Trading volumes in March gilt futures were starting to thin as investors were moving into the June contract. Bank of England policymaker Paul Fisher, who this month voted for a resumption of bond-buying quantitative easing by the bank, said late on Tuesday that the 25 billion-pound ($37.8 billion) top-up he supported might need to be the first in a series of new purchases. "Arguably, his comments about a possibly extended progamme of purchases is something the gilt market is taking into account for its slight outperformance," said RBC Capital Markets strategist Sam Hill. Earlier on Tuesday, Deputy BoE Governor Paul Tucker said he was open to more bond purchases, but that "sound money" was his priority, and that much of the effect of existing purchases was still to be felt. Otherwise, gilts were largely unmoved by data confirming that Britain's economy contracted by 0.3 percent in the last quarter of 2012 as first estimated, although yearly growth was revised up. Ten-year gilt yields fell 5 basis points to 1.95 percent, while their spread versus equivalent Bund yields was 3 basis points tighter at 51 basis points. * March gilt future 117.82 (+0.38) * March short sterling 99.50 (UNCH) * June short sterling 99.53 (UNCH) * 10-year yield 1.95 percent (-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 A list of all the strippable British gilts