LONDON, May 18 (Reuters) - Euro zone bond yields rose to their highest in weeks on Thursday as investors welcomed signs of progress on the U.S. debt ceiling and reacted to strong U.S. economic data by selling bonds in favour of riskier assets.

U.S. President Joe Biden and top congressional Republican Kevin McCarthy said on Wednesday they were determined to reach a deal soon to raise the federal government's $31.4 trillion debt ceiling and avoid a default.

That helped spur investors to sell bonds on Wednesday and Thursday in favour of stocks. Yields move inversely to prices.

Germany's 10-year government bond yield, the benchmark for the euro zone, rose to 2.415% on Thursday, its highest since May 2. It was last up 8 bps at 2.413%.

Stronger-than-expected economic data, which traders saw as slightly increasing the chances that the Federal Reserve will raise interest rates again next month, boosted U.S. and European yields on Thursday.

U.S. jobless claims fell further than predicted last week, data showed, and the Philadelphia Fed's manufacturing business survey for May also beat expectations.

Italy's 10-year yield was last up 12 bps at 4.305%. It hit 4.313% earlier in the session, its highest since April 28.

The closely watched spread between Italian and German 10-year borrowing costs widened around 5 bps to 188 bps.

"There is growing optimism that some framework on the debt ceiling agreement could be announced as soon as this Sunday," said Mohit Kumar, chief European economist at Jefferies, in emailed comments.

"Once the debt ceiling is resolved, we go back to the macro, with the labour market showing signs of cracking, and inflation high enough to exclude any support from central banks."

Kumar said he thinks the 10-year German Bund yield could rise to 2.5% if an agreement is reached.

Germany's 2-year yield, which is sensitive to interest rate expectations, was last up 5 bps at 2.792%.

ECB Vice President Luis de Guindos said on Thursday the central bank will need to keep raising interest rates though most of the tightening has already been done.

The central bank slowed its rate hikes earlier this month with a 25 bp increases, taking the main rate to 3.25%.

(Reporting by Joice Alves; Editing by Hugh Lawson and Kirsten Donovan)