Gilts weighed by equities bounce, brush off data, supply 

British gilt futures stayed in the red in mid-session trade on Tuesday, weighed by a rebound in equity markets as worries about Dubai's debt woes abated. Skip related content

An unexpectedly weak reading on the CIPS/Markit manufacturing PMI did not elicit much attention, nor did strong demand at a sale of 5 billion pounds of 5-year gilts, with investors reluctant to take big positions ahead of more supply on Wednesday.

European equities markets, meanwhile, were trading around 1.5 percent up on the day, cheered by property firm Dubai World's plans to restructure around half of the debt it owes to investors and reassuring markets its problems can be contained.

"It seems to have been a bit of a choppy morning with no clear direction," said Francis Diamond, strategist at JP Morgan. "We've got the 30-year auction tomorrow, but once that's out of the way things will start to get a bit quieter and we may get driven more by equities and global situations," he added.

"The correction in equities is overhang from the Dubai story."

In the cash market, the yield on 10-year gilts was almost 4 basis points up at 3.551 percent, widening the spread against Bunds by 2 basis points to 38 basis points.

"We're in a week where we have two auctions and one buyback, plus equities have calmed down and are doing better," said a London-based trader. "There's just a slightly better tone to those other markets at the moment."

The Debt Management Office will sell 2.25 billion pounds of 30-year gilts on Wednesday, while the Bank of England will purchase 1.7 billion pounds of 25-year plus gilts this session, announcing the results of its buyback after 2:45 p.m..

JP Morgan's Diamond said he expected investors to try to offload their longer-dated gilts at the operation to make room for the 2039 paper.

"I suspect we'll get a decent reverse auction without too much follow-through," he said.

(Editing by Stephen Nisbet)