By Agnes Lovasz Oct. 17 (Bloomberg) -- European bonds dropped as investors shifted money out of the safest assets amid speculation government rescue plans for banks and cash injections by central banks will unfreeze credit markets. The decline pushed yields on two-year notes up from the lowest level in more than a week as stocks in Asia and Europe rallied and the cost of protecting European corporate bonds from default slipped. Money-market rates eased after central banks pumped in billions of dollars to unclog a global financial gridlock. Rising stocks are ``bearish for bond markets, as investors move back to risky assets,'' said Jens Peter Soerensen, chief bond analyst in Copenhagen at Danske Bank A/S. ``Equity and credit markets are likely to determine the path of yields today. We expect higher yields and a flatter curve.'' The yield on the German bund, Europe's benchmark government security, rose 2 basis points to 4.09 percent by 8:08 a.m. in London. The price of the 4.25 percent bond due July 2018 fell 0.19, or 1.9 euros per 1,000-euro ($1,348) face amount, to 101.22. The yield on the two-year note climbed 2 basis points to 2.92 percent. Yields move inversely to bond prices. The difference in yield between two- and 10-year German notes held near the widest in more than three years on bets a recession will persuade the European Central Bank to lower interest rates. The spread was at 116 basis points, from 117 basis points yesterday and 96 basis points a week ago. The MSCI Asian index of stocks added 1.4 percent today, and equity markets in Europe opened higher. To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

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