Feb 14 (Reuters) - Euro zone government bond yields were

little changed on Friday and set to end the week higher after

U.S. economic data and Federal Reserve Chair Jerome Powell's

remarks.

Economists noted that Thursday's U.S. producer price index

painted a less alarming picture for underlying inflation

dynamics than Tuesday's consumer price data.

Fed Chair Powell said this week the central bank is in no

rush to cut interest rates.

Markets await U.S. retail sales data later in the session.

Euro zone data showed the economy is broadly stagnant.

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

benchmark, was up one basis point (bp) at 2.43%.

Markets are monitoring prospects for a peace deal in

Ukraine, which could boost the euro area's economy, and taking

comfort that U.S. reciprocal tariffs were not immediately

imposed.

U.S. Vice President JD Vance warned Russia that Washington

could hit Moscow with sanctions if it does not agree to a good

peace deal for Ukraine, while urging Europe to spend more on

defence as he arrived for the Munich Security Conference.

German elections are also in investor focus as a possible

reform of the debt brake could increase German bond supply.

"An election outcome under which debt brake reform appears

plausible would likely fuel cheapening pressure of German bond

yields versus swaps, with markets pricing in higher German

budget deficits and larger German bond issuance volumes down the

line," said Rohan Khanna, head of euro rates strategy at

Barclays in a research note.

"We think this type of price action would likely be most

notable in a scenario where a CDU-SPD coalition appears to have

won a two-thirds majority in the parliament, and to a lesser

extent if a CDU-SPD-Green coalition appears to be clearing the

same hurdle," he added, flagging that such an outcome is highly

unlikely based on current polls.

The gap between the interest rate swap and Bund yields

was at -2.5 bps after recently hitting -8 bps.

The most likely coalition, involving Conservatives and

Social Democrats, could struggle to agree on deep reforms.

Germany's 2-year yield, more sensitive to

European Central Bank policy rates, rose one bp to 2.1%.

Italy's 10-year yield was up 1.5 bps at 3.52%.

The yield gap between Italian and German yields

was at 107.5 bps.

Yield spreads between peripheral and core bonds have

tightened as appetite for risky assets was high, driving global

stock markets to record highs this week.