``Yesterday, European bonds looked like they were going to fall out of bed but now investors are reluctant to push yields any higher,'' said Andrew Roberts, chief European debt strategist in London at Merrill Lynch & Co.

The 4 1/4 percent German bond due July 2014 rose 0.16, or 1.6 euros per 1,000 euro ($1,201) face amount, to 99.82 by 4:42 p.m. in London, pushing the yield down 2 basis points to 4.27 percent, according to DZ Bank AG. A basis point is 0.01 percentage point. The yield on the 10-year bund yesterday rose to 4.32 percent, its highest in a month.

The Italian government today sold 6 billion euros of debt today including 2 billion euros of note maturing in 2014. The 10- year auction was oversubscribed 4.1 times compared with 1.6 times at the previous auction on June 28.

``Demand at the auction was ballistic'' said Roberts. ``It shows demand for bonds it out there.''

Bonds fell earlier on speculation inflation in the 12 nation euro region will exceed the European Central Bank's target for a third month in July, adding to the case for the bank to raise interest rates this year.

Consumer prices across the euro region rose 2.4 percent in July, a European Union report may show tomorrow, exceeding the ECB's 2 percent ceiling for a third month, according to a survey of 37 economists.

``We expect the pressure of inflation to have increased in July both at the level of the individual member states and Europe- wide,'' said Andy Cossor, a senior fixed-income analyst in Frankfurt at DZ Bank AG, Germany's biggest cooperative bank. ``This is likely to be yet one more factor with the potential to weigh on the bond market.''