LONDON, March 3 (Reuters) - Euro zone longer dated bond

yields rose moderately in early trading on Monday, as traders

processed the weekend's geopolitical developments which will

likely require greater European borrowing to spend on defence.

Germany's 10-year Bund yield, the euro zone

benchmark, rose 4 basis points in early trading to 2.43%.

The move was partly a rebound from Friday's more than

two-week low of 2.37%, but also came after European leaders

agreed at a Sunday summit in London that they must spend more on

defence.

The European Commission chief suggested the bloc could ease

rules that limit debt levels.

In addition, Reuters reported, citing sources, that the

parties in talks to form Germany's new government are

considering quickly setting up two special funds potentially

worth hundreds of billions of euros, one for defence and a

second for infrastructure.

Italy's 10-year yield was 3 bps higher at 3.49%.

Shorter dated bonds moved less. Germany's 2-year yield

was down 2 bps at 2.41%.