By Yoruk Bahceli
Aug 19 (Reuters) - German bond yields rose on Friday, with benchmark 10-year yields touching their highest in four weeks, as producer prices in the euro zone's lead economy posted their biggest jump on record, stoking inflation concerns.
Producer prices in July in Germany leapt 37.2% from the same time last year and 5.3% from June, compared to the 0.6% monthly rise expected in a Reuters poll.
Germany's 10-year yield, the benchmark for the euro area, rose as much as 8 basis points (bps) to 1.184%, the highest in four weeks.
The two-year yield, which is more sensitive to interest rate expectations, rose as much as 7 bps to 0.82%, the highest since June 30.
Viraj Patel, global macro strategist at Vanda Research, said the data "reinforces Europe stagflation fears and the bond market is scared of sticky inflation."
Bond markets have been caught in a tussle, particularly in the euro zone, between fears of a looming recession and red-hot inflation.
After a sharp fall earlier in the summer driven by recession fears, bond yields have risen particularly sharply this week as investors have started increasing their bets on European Central Bank rate hikes.
Germany's 10-year yield, for example, is set for its biggest weekly rise since early June, up 18 bps this week.
Money markets have moved to fully price a 50 bp hike from the European Central Bank in September, compared to the 50% chance of such a move priced in early August, as well as a small probability of a 75 bp move at that meeting.
They have also moved to price in around 15 bps of additional ECB hikes by December since last week.
Elsewhere, Italian 10-year yields rose as much as 10 bps to 3.43%, widening the closely-watched spread over German peers to 224.8 bps, the widest in over three weeks. (Reporting by Yoruk Bahceli Editing by Mark Potter)