By Marius Zaharia
LONDON, Nov 28 (Reuters) - German Bund futures fell on Thursday after data showed Spanish annual inflation rising in November, reducing pressure on the European Central Bank to ease monetary policy further.
Spanish inflation rose 0.3 percent year-on-year in November from 0 percent in the previous month, fuelling expectations that the overall euro zone inflation figures, due on Friday, will come out above a 0.8 percent forecast.
An unexpected drop in annual euro zone inflation in October to 0.7 percent - well below a close-to-2 percent target - prompted the ECB to cut its key interest rate to a record low of 0.25 percent earlier this month.
Expectations of lower energy prices after a deal to ease sanctions on Iran if it curbs its nuclear activity have fuelled speculation the ECB could do more to relax monetary conditions.
German inflation at 1300 GMT could still skew market expectations about the ECB outlook.
"The Spanish inflation figure ... will take a little bit of pressure off the ECB to do something at the next meeting (on Dec. 5," said Elwin de Groot, senior market economist at Rabobank in Utrecht.
Bund futures fell 40 ticks on the day to 141.23, while 10-year German Bund yields rose 3.5 basis points to 1.74 percent.
Low volumes due to the U.S. Thanksgiving holiday were expected to exacerbate price moves throughout the day.
While the speculation surrounding the ECB has been supportive for Bunds in the past few weeks, a contrasting outlook for the Federal Reserve on the other side of the Atlantic has limited gains.
An unexpected fall in U.S. jobless claims and an upbeat consumer sentiment indicator on Wednesday raised expectations the Fed could start trimming its bond buying stimulus as early as next month.
"Expectations of tapering in the U.S. will put (upward)pressure on Treasury yields, with some spillover in Bunds, but the impact on Bunds will be less pronounced because of the ECB (outlook)," UniCredit rate strategist Luca Cazzulani said.
The ECB is not expected to tighten its policy in the foreseeable future.
Elsewhere, Italian 10-year yields were flat at 4.065 percent before an auction of up to 2.5 billion euros of 2024 bonds. The small amount on offer will ensure a smooth sale, analysts said. (Reporting by Marius Zaharia; Editing by Janet Lawrence)