Jan 31 (Reuters) - Euro zone government bond yields

inched higher on Friday ahead of German inflation data as

Thursday's European Central Bank policy meeting led investors to

confirm their expectations for the monetary easing path.

The ECB cut interest rates and policymakers guided for a

further reduction in March as concerns over lacklustre economic

growth supersede worries about persistent inflation.

Markets also await later in the session the U.S. Personal

Consumption Expenditures (PCE) Price Index, the Federal

Reserve's preferred measure of inflation.

Germany's 10-year bond yield, the euro area's

benchmark, rose 2 basis points (bps) to 2.54%.

Money markets priced in a 84% chance of a 25 bps ECB cut in

March and a depo rate at 2.05% at

the end of 2025, in line with the levels seen on Thursday before

the ECB statement.

Germany's two-year bond yield, more sensitive to

ECB rate expectations, was up 2 bps at 2.22%.

Italy's 10-year yield was 2.5 bps lower at

3.62%. The gap between Italian and German yields

-- a market gauge of the risk premium investors demand to hold

Italian debt -- was at 108 bps, not far from its lowest level

since October 2021 at 104.50 bps.

The yield spread between OATs and Bunds stood

at 74.50 bps. It widened to around 90 bps, its highest since

2012, in mid-January and end-November amid fears that France

would be unable to cut its growing budget deficit.