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Germany's Bund yield rises to new high since March 2020

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* Italy's 10-year yield at highest since September 2020

* Bunds monitored closely for new trend - UniCredit (Recasts, adds details, updates prices)

May 3 (Reuters) - Benchmark German bond yields rose to their highest since March 2020 and Italian yields to their highest since September on Monday as analysts watched to see if last month's euro zone government bond sell-off has more room to run.

German bonds underperformed U.S. Treasuries and yields, which move inversely with prices, rose in April.

The sell-off intensified last Thursday when German inflation advanced further above the European Central Bank's target, and U.S. data showed economic growth speed up in the first quarter.

Expectations of higher growth and a reignition of inflation, first triggered by vast fiscal stimulus in the United States, have pushed government borrowing costs on both sides of the Atlantic higher this year.

Investors are on the lookout for signs hinting that central banks may start scaling back extraordinary monetary stimulus, which still holds down bond yields.

After calming on Friday, when month-end buying supported bond prices, Germany's 10-year Bund yield, the benchmark for the region, rose over 3 basis points to a new high since March 2020 at -0.162% on Monday.

Italy's 10-year yield scaled a new high since September 2020 at 0.903%.

Arne Petimezas, analyst at AFS Group in Amsterdam, said that while he did not see a specific driver behind Monday's move, it is in line with expectations.

"Recovery is picking up, vaccinations are accelerating, reopening is nearing," he said.

Some investors ended April expecting a further rise in euro area government bond yields as vaccinations speed up and UniCredit analysts earlier said Bunds would be monitored "particularly closely" for any indication as to whether last week's sell-off may be the beginning of a new trend.

There is also concern about market unease ahead of the European Central Bank's June meeting, where it will have to review its March decision to speed up its pandemic emergency bond purchases.

The ECB can start phasing out emergency measures when the pace of coronavirus vaccinations reaches a critical level and the economy picks up speed, Vice President Luis de Guindos said.

Monday's yield rise came with German retail sales posting an unexpected surge in March as the relaxation of some lockdown measures stimulated purchases. nL8N2MQ0V8]

But euro zone April manufacturing activity data came in slightly under an initial estimate, though still at the highest since the survey began in 1997.

The moves also came in a quiet trading session given a public holiday in London, as well as Japan and China, which can dampen market liquidity and enhance moves.

Focus turns to the United States later on Monday, where the ISM U.S. manufacturing activity figure due at 1400 GMT is expected to show slight growth in April. (Reporting by Yoruk Bahceli; Editing by Subhranshu Sahu and Mark Heinrich)

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