(Updates with late trading, trade deal news)

By Stefano Rebaudo and Lucy Raitano

May 8 (Reuters) - Euro zone government bond yields rose

on Thursday, as investors digested a raft of developments

including a trade deal between the U.S. and Britain and a Bank

of England rate cut.

U.S. President Donald Trump and British Prime Minister

Keir Starmer on Thursday announced a "breakthrough deal" on

trade that leaves in place a 10% tariff on goods imported from

the UK while Britain agreed to lower its tariffs to 1.8% from

5.1% and provide greater access to U.S. goods.

The deal, which had been trailed since the morning,

broadly supported global share markets and weighed on safe-haven

bonds.

Germany's 10-year yield, the euro area's

benchmark, rose 4 bps to 2.51%. It hit 2.556% on Tuesday, its

highest level since April 14.

Central banks were also in the mix globally with

spillovers into euro zone bonds. The Bank of England on Thursday

cut rates by 25 basis points, but markets were surprised by two

policy makers voting to keep rates unchanged.

UK gilt yields spiked higher on the news, with the

policy-rate sensitive 2-year up 12 basis points (bps)

at 3.93% reacting as some investors had bet the BoE would signal

more quick rate cuts.

"We expected a cautious commitment to further easing

...Instead, the statement was undeniably more hawkish with the

main surprise being the vote split with two members calling for

unchanged rates," said Steve Ryder, senior portfolio manager at

Aviva Investors.

Also in the mix, the Federal Reserve held interest rates

steady on Wednesday but said those risks clouded the U.S.

economic outlook as policymakers grapple with the impact of

Trump's tariffs.

"While the Fed sees increased risks to both employment and

inflation, this assessment is probably obvious given the tariff

backdrop," said Hauke Siemssen, rate strategist at Commerzbank.

"More insightful were (Fed chair Jerome) Powell's remarks

that there is no real cost to waiting as the labour market is

still doing well while inflation has come down," he added,

arguing that markets did not interpret this as overly hawkish.

These global developments largely outweighed European

factors for bonds on Thursday.

Money markets priced in a European Central Bank deposit

facility rate at 1.6%. It fell to below 1.55% in mid-April as

the ECB suggested it was ready to cut rates in response to the

potential adverse impact of U.S. tariffs.

German 2-year yields, more sensitive to European

Central Bank policy rates, rose 4 bps to 1.77%.

Italy's 10-year yield was up 3 bps at 3.59%,

leaving the spread between it and Germany's Bund yield - a

market gauge of the risk premium investors demand to hold

Italian debt - at 103 bps.