Short-end euro zone yields surge, euro jumps as Lagarde signals more hikes

LONDON (Reuters) - Germany's two-year bond yield headed for its biggest daily jump in 14 years, while the euro rallied against the dollar and the pound after European Central Bank President Christine Lagarde signalled more aggressive rate hikes.

Lagarde said it was "obvious" that further 50basis point rate hikes should be expected for a period of time, after the central bank raised rates by 50 basis points at its December meeting, following November's 75-bp increase.

Germany's 2-year government bond yield, the most sensitive to changes in interest rate expectations, jumped as much as 24 basis points to 2.36%, its highest since December 2008. It was on track for its biggest daily jump since September 2008, when the credit crisis was unfolding.

The euro, which had been lower against a broadly stronger dollar, rose as high as $1.0737, its highest since early June. It was last up 0.2% at $1.0707.

The euro rose over 1% against the pound to 86.91 pence, its biggest daily rise since Nov. 3.

European shares extended losses. The pan-European STOXX 600 fell 2.3% to its lowest since Nov. 18.

(Reporting by Samuel Indyk; Editing by Amanda Cooper)