(Updates at 1013 GMT)

By Samuel Indyk

LONDON, Aug 13 (Reuters) - Euro zone bond yields were

little changed on Tuesday as recent volatility in financial

markets continued to ebb, with markets waiting for the release

of U.S. inflation data for hints on when the Federal Reserve

might ease policy.

Focus is turning to Wednesday's U.S. consumer price figures,

with investors looking for signs that inflation is slowing

enough for the Fed to lower rates next month and by how much.

Futures markets are evenly split on whether the central bank

will lower borrowing costs by 25 or 50 basis points in

September, having last week fully priced in a half-point move

when concerns about the U.S. economy sent bond yields and stocks

tumbling.

"We're sitting and waiting for tomorrow," said Jens Peter

Sørensen, director, fixed income research at Dankse Bank. "We

have the expectation that the Fed is going to cut rates but it's

more a matter of how much and for how long."

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

the euro zone, was steady at 2.227%. It hit its lowest since

January at 2.074% last week.

Bond yields tumbled last Monday as investors turned to the

relative safety of government bonds following a collapse in

global equities, as markets fretted about the strength of the

economy following disappointing U.S. jobs data.

Stronger U.S. data since then has soothed those concerns and

helped yields recover.

But while U.S. data is signalling a slowdown in growth

rather than an outright recession, data from the euro zone

continues to paint a more sombre picture.

German investor morale worsened by more than expected in

August, posting its strongest decline in two years, the ZEW

economic research institute said on Tuesday.

"The economic outlook for Germany is breaking down," said

ZEW president Achim Wambach.

Having cut rates in June, markets are assigning around a 90%

chance that the European Central Bank moves again in September

with a quarter-point cut, following a pause in July.

Germany's policy-sensitive two-year yield was

down 2 basis points (bps) at 2.378% but remained above last

week's low of 2.151%, its lowest since March 2023.

Italy's 10-year yield was 1 bp lower at 3.631%,

narrowing the yield gap between Italian and German 10-year bonds

to 140 bps.