(Updates after US producer prices data)

By Harry Robertson

LONDON, July 12 (Reuters) - Euro zone bond yields rose

slightly on Friday after data showed U.s. producer price

inflation was stronger than expected in June, but were on track

for a weekly fall after a sharp drop the previous day on the

back of weak U.S. consumer prices figures.

German 10-year bond yield, the benchmark for the

euro zone, was last up 4 basis points (bps) at 2.511%, around 1

bp higher than before the data. Yet it was on track to end the

week around 2 bps lower after dropping 7 bps on Thursday. Yields

move inversely to prices.

Data showed year-on-year producer price index inflation came

in at 2.6% in June, up from 2.4% in May and above economists'

expectations for a 2.3% reading.

The data pushed U.S. and euro zone yields up a tick. But

they were nonetheless set to fall across the week after consumer

inflation figures on Thursday showed prices fell 0.1%

month-on-month in June, causing U.S. and euro zone yields to

tumble.

Germany's two-year bond yield was 4 bps higher at

2.836% after dropping 10 bps the previous day.

Given the size of the U.S. economy and importance of the

dollar, U.S. economic data and changes in expectations about

Federal Reserve policy tend to move markets around the world.

France's 10-year bond yield, which has been in

focus after Sunday's election resulted in a hung parliament,

rose 4 bps to 3.163% but was on track to finish the week 4 bps

lower.

The spread between French and German borrowing costs

was steady at 65 bps.

Italy's 10-year yield was up 3 bps at 3.814%,

and the gap between Italian and German bond yields

was a margin narrower at 130 bps.

The European Central Bank will meet to set interest rates

next week, although traders think another rate cut after June's

reduction is highly unlikely.

"Recent data and ECB speak suggest that the risk of a cut at

the July meeting is close to zero - a hold is pretty much

guaranteed," TD Securities strategists said in a note on Friday.

"Focus will be on whether President (Christine) Lagarde

opens up the door more explicitly to a cut at the September

meeting."