Germany and France agreeing to make investors participate in losses in sovereign default was an important factor in the intensification of the euro zone sovereign debt crisis, a Bank for International Settlements report said on Sunday.

The BIS quarterly review said that this agreement and the worsening fiscal situation in Ireland were the two factors driving some euro zone countries' credit spreads upward.

The surge in sovereign credit spreads began on October 18, when the French and German governments agreed to take steps that would make it possible to impose haircuts on bonds should a government not be able to service its debt, the report said.

Focus quickly turned to the Irish banking system, which has grown more reliant on the central bank as repo market loans using Irish government bonds as collateral had become prohibitively expensive.

The report said there was no obvious information triggering investors beginning to eye Portuguese and Spanish debt, and later Belgian and Italian ones, where bond and CDS spreads reached new highs.

BIS also said that in the past three months, expectation and then actualization of further monetary easing dissipated concerns of deflation taking hold in the United States, and spreads between 10- and 30-year Treasury bonds indicated higher expected inflation.

This would indicate that the Fed had raised inflation expectations, the BIS report said. Concerns about deflation in the United States began to abate from around September onwards.

The Fed committed in early November to buying $600 billion more in government bonds by the middle of next year in an attempt to breathe new life into a struggling U.S. economy.

In the past three months, emerging economies saw increasing inflationary pressures following their quick rebound from the global financial crisis, the BIS also said.

(Reporting by Sakari Suoninen; Editing by Toby Chopra)

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