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AMSTERDAM: German 10-year bond yields dropped to 6-1/2 week lows on Friday as risk appetite was hit and global stocks fell following a surge in coronavirus infections.

More than 60,500 new COVID-19 infections were reported across the United States on Thursday, according to a Reuters tally, the largest one-day increase by any country since the pandemic first emerged.

"Confidence in risk assets cracked after previously holding up in the face of resurging Covid-19 counts and renewed lockdowns in some regions," ING analysts told clients.

Safe-haven German 10-year bond yields briefly touched -0.49%, their lowest since May 25. They were last down 2 basis points at -0.48%. Italian 10-year yields were flat at 1.29% after rising as much as 3 bps earlier.

That pushed Italy's risk premium - the yield it pays for 10-year debt on top of Germany - to as high as 178 basis points, a 1-1/2 week high.

"There's limited upside (for Bunds) given how quickly we've rallied over the last day or so," said Mizuho strategist Peter McCallum. Ten-year yields have fallen 6 basis points over the last three sessions.

There was little reaction to data that showed Italy's industrial output rebounded much more strongly than expected in May.

Inflation expectations continued to fall, with a key long-term euro zone gauge falling to its lowest since June 22 at 1.07%

"That is more a function of the underlying rates markets rather than inflation expectations per se," Mizuho's McCallum said.

"We think that if inflation expectations are to fall off dramatically, that will mean the ECB will commit even more forcibly to their PEPP programme, so we wouldn't read too much into that."

Fitch was due to review Italy's credit rating later on Friday. Analysts don't expect a further downgrade after the rating agency's off-schedule downgrade of Italy's rating in April to 'BBB-', one-notch above junk.

Focus was also turning to the European Central Bank's meeting next Thursday, where most analysts don't expect a change to the bank's monetary policy.

The European Central Bank's emergency purchase envelope is likely to be used in full despite suggestions to the contrary recently by policymakers, MNI reported on Thursday citing sources, with some sceptical that purchases would be temporary.

Coupled with a fall in weekly emergency bond purchases, some analysts had seen the previous statements as potentially worrying for the programme, which has been crucial in dampening the borrowing costs of heavily-indebted southern European states like Italy.