By Harry Robertson
LONDON, Oct 17 (Reuters) - Euro zone bond yields picked up on Tuesday as investors moved out of safe-haven assets and the focus returned to growth, inflation and central bank policy.
Germany's 10-year bond yield was last up 2 basis points (bps) at 2.803%, after rising 5 bps on Monday. Yields rise as bond prices fall, and vice versa.
Italian bond prices fell more sharply, with the yield on the country's 10-year bond up 6 bps at 4.82%.
"Yields are rising in general because U.S. yields are rising and they have been rising for the last couple of days. That's pulling us along," said Peter Schaffrik, head of interest rate strategy at RBC Capital Markets.
U.S. and European bond yields hit their highest levels in more than a decade at the start of October, as central bankers stressed they will hold interest rates at high levels until inflation is conquered, before falling as geopolitical concerns came to the fore.
Schaffrik said investors were now selling bonds again after buying them for their safe-haven properties in the wake of Palestinian militant group Hamas' attack on Israel.
"Some of that is reversing now and some of that underlying story that was around beforehand - economy too strong, wages still rising - hasn't gone away."
The U.S. 10-year Treasury yield, which sets the tone for borrowing costs around the world, was 4 bps higher at 4.746% on Tuesday after rising 8 bps on Monday.
Christoph Rieger, head of rates and credit research at Commerzbank, said weak demand for government debt sales was weighing on the bond market.
"The main reason is duration aversion," he said.
An auction of 20-year Japanese bonds was met with a lukewarm response, ahead of sales by Spain, the Netherlands and Germany on Tuesday. Last week, an auction of 30-year U.S. bonds received poor demand.
European Central Bank chief economist Philip Lane said in an interview published on Monday that there is "quite some distance" to cover before rate cuts are on the agenda. The ECB sets interest rates next week, after raising its key policy rate to 4% in September.
Germany's 2-year bond yield, which is sensitive to expectations about ECB interest rates, was last up 2 bps at 3.171%.
The outsized rise in Italian yields took the gap between Italy and Germany's 10-year bond yields to 201 bps, up 4 bps on the day. It is seen as a sign of investor sentiment towards the euro zone's more indebted countries and hit its highest since January earlier this month at 209 bps.
U.S. retail sales figures are due later in the day and will give a sense of the strength of consumer spending, which has so far held up in the face of rapid interest rate hikes. Federal Reserve chair Jerome Powell is due to speak on Thursday. (Reporting by Harry Robertson, editing by Deborah Kyvrikosaios)