German bond yields briefly extended their surge and the euro weakened further on Thursday after a Bloomberg News story which cited unnamed sources saying the European Central Bank's new anti-fragmentation tool would probably involve selling other securities to avoid upsetting the bank's efforts to curb record inflation.

German 10-year bond yields initially extended their rise and rose as much as 23 bps on the day at one point to 1.93%, but then gave up some of the rise and were last up 19 bps on the day at 1.83%, on track for their biggest daily rise since March 2020.

Yields on Italian bonds, the prime beneficiary of any anti-fragmentation effort, clawed back an earlier rise and were unchanged on the day at 3.92% after rising over 4% earlier.

The closely watched spread over German yields was at 207 bps, from 227 bps earlier, in volatile trading.

The euro extended losses with the single currency down 0.6% at $1.0390.

(Reporting by Yoruk Bahceli and Saikat Chatterjee)