(Updates at 1015 GMT)

By Harry Robertson

LONDON, Aug 14 (Reuters) - Euro zone bond yields edged

higher Wednesday as investors waited for a U.S. consumer

inflation report that will help guide Federal Reserve policy and

could influence other central banks.

Germany's 10-year bond yield, the benchmark for

the euro zone bloc, was up 2 basis points (bps) 2.206%. Yields

move inversely to prices.

The benchmark German yield has fallen sharply from a roughly

six-month high of 2.707% in May as euro zone and U.S. inflation

has cooled, reassuring investors that further European Central

Bank rate cuts are coming this year.

Data at 1230 GMT on Wednesday is expected to show U.S.

inflation, as measured by the consumer price index (CPI), held

steady at 3% year-on-year in July. The month-on-month core

reading, closely watched by markets, is expected to rise to 0.2%

from 0.1% in June.

The size and importance of the U.S. economy and dollar means

American data often moves bond yields and interest rate

expectations around the world.

"A consensus 0.2% month-on-month U.S. core CPI today would

support a Federal Reserve rate cut in September and help restore

market sentiment further," said Benjamin Schroeder, senior rates

strategist at lender ING.

French inflation for July was revised slightly higher to

2.7% year-on-year on Wednesday, putting a touch of upward

pressure on bond yields.

Italy's 10-year yield was up 1 bp at 3.584%, and

the gap between Italian and German bond yields

narrowed 1 bp to 137 bps.

Germany's two-year bond yield, which is more

sensitive to ECB rate expectations, rose 2 bps to 2.36%.

Bond yields have bounced around over the last week and a

half as fears about a slowdown in the U.S. labour market, and

the unwinding of some of this year's biggest equity and currency

trades, have injected volatility into financial markets.

Investors have however been reassured by cooler inflation

data, with bond yields falling and stocks rising on Tuesday

after U.S. producer price figures came in softer than expected.

Traders on Wednesday were expecting around 70 bps of further

interest rate cuts from the ECB this year, after a 25 bp

reduction to 3.75% in June, little changed from Monday and

Tuesday.