By Caroline Valetkevitch
NEW YORK (Reuters) - U.S. and European government bond yields jumped on Thursday, with the yield on U.S. 10-year Treasury notes rising to the highest in more than 25 months, as economic data supported the view the Federal Reserve might reduce its bond purchases this month.
U.S. stocks opened higher and were on track for a third day of gains on the data, which showed improving U.S. economic conditions. Growth in the U.S. services sector accelerated in August to its fastest pace in almost eight years.
The data, which follows an upbeat U.S. manufacturing report from Tuesday, could bolster expectations the Fed will begin winding down a bond-buying stimulus program this month.
"(It's) enough to reinforce expectations that the Fed will begin to taper its asset purchases," said Paul Ashworth, an economist at Capital Economics in Toronto.
Central banks have attempted to talk down expectations of any rate rises, and left loose policies unchanged, as data from China, Britain and the euro zone point to a global economic recovery gathering steam.
As widely expected, the European Central Bank, the Bank of Japan, Sweden's Riksbank, and the Bank of England all left policy unchanged on Thursday.
Benchmark 10-year Treasury notes last traded down 12/32 in price, yielding 2.941 percent, up 4.3 basis points from late on Wednesday. The 10-year yield rose to a session high of 2.958 percent, a level not seen since July 2011.
The rise dragged the German government 10 year Bund to a new 1-1/2 year high above 2 percent. British gilts also rose.
The 30-year bond added to losses after the services sector data, and last traded 28/32 lower in price, yielding 3.848 percent, up 5.3 basis points from late on Wednesday.
Friday's U.S. employment report could confirm a recovery in the job market.
The prospect of higher rates spilling over to affect the rest of the world prompted Russia and China to warn at the G20 leaders' meeting in Russia that the end of the Fed's bond-buying program could have a profound impact on the global economy.
MSCI's world equity index was up 0.2 percent, and European shares were up 0.5 percent.
The Dow Jones industrial average was up 3.28 points, or 0.02 percent, at 14,934.15. The Standard & Poor's 500 Index was up 2.41 points, or 0.15 percent, at 1,655.49. The Nasdaq Composite Index was up 6.64 points, or 0.18 percent, at 3,655.69.
SYRIA ACTION
Brent oil prices briefly rose above $115 a barrel after U.S. President Barack Obama won some support from lawmakers for a military strike on Syria.
The possible military strike against Syria in reaction to its alleged use of chemical weapons, and the Fed's potential to reduce its stimulus, were also dominating discussions at the meeting of leaders from the Group of 20 economies in St. Petersburg.
Brent crude was last down 4 cents at $114.87 a barrel. U.S. oil gained 75 cents to $107.98 a barrel.
DOLLAR UP AGAINST EURO
The dollar rose to a six-week peak against the euro as ECB President Mario Draghi said the bank's Governing Council expects key ECB interest rates to remain at present or lower levels for an extended period.
In India, where the impact of higher U.S. Treasury yields has a dramatic effect on capital flows, the new central bank chief on Thursday unveiled a package to support the currency and the banking sector that sent the main NSE share index up 2.7 percent and boosted the rupee.
(Additional reporting by Richard Hubbard and Blaise Robinson in London; Editing by Stephen Nisbet and Nick Zieminski)
