European government bonds may extend declines after Jean-Claude Trichet, the head of the regions central bank, said it is ready to counter strong upward pressure on inflation.Benchmark debt fell after Trichet said some central bank policy makers had favored an interest-rate increase at yesterdays meeting in Frankfurt. The bank held rates at 4 percent after consumer prices rose at the fastest pace in more than six years in November.The ECB at this stage doesnt seem worried about the credit crunch as much as it is about inflation, said Alessandro Tentori, a fixed-income strategist at BNP Paribas SA in London. The bond market is taking stock of the significant revision to inflation expectations next year.The yield on the 10-year bund, Europes benchmark, climbed 4 basis points to 4.08 percent yesterday in London, paring its weekly decline to 6 basis points. The price of the 4.25 percent security due July 2017 fell 0.34, or 3.4 euros per 1,000-euro ($1,461) face amount, to 101.32.Two-year note yields rose 2 basis points to 3.81 percent. Yields move inversely to bond prices.Bonds may also drop as global equity gains crimp demand for the safest assets. Asian stocks rose, set for a second weekly advance, after the U.S. government announced a plan to limit defaults on subprime mortgages.The ECB raised its inflation forecast for 2008 yesterday to between 2 percent and 3 percent, from between 1.5 percent and 2.5 percent previously. Inflation erodes the value of bonds fixed- income payments and weakens the case for a rate cut next year.In the governing councils view, the risks surrounding the outlook for growth remain on the downside, Trichet told a press conference in Frankfurt after the decision. Policy makers will continue to monitor developments in financial markets, he said.The inflation rate in the 13-nation euro area rose to 3 percent in November, from 2.6 percent the month before, the European Unions statistics office in Luxembourg said Nov. 30.The Bank of England yesterday lowered the highest borrowing costs among the Group of Seven nations to stave off a recession.