Euro zone yields rise as markets brace for further borrowing and spending

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 DE10YT=RR, 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 IT10YT=RR was 3 bps higher at 3.49%.

Shorter dated bonds moved less. Germany's 2-year yield DE2YT=RR was down 2 bps at 2.41%.