May 13 (Reuters) - Euro zone government bond yields

struggled for direction on Monday, with investors on hold ahead

of U.S. figures following a data-light week.

Investors will focus on April's U.S. Producer Price Index

(PPI), to be released on Tuesday, and the Consumer Price Index

(CPI) and retail sales data on Wednesday.

Germany's 10-year government bond yields, the

bloc's benchmark, dropped 1 basis point (bp) to 2.51%.

Markets price in 68 basis points (bps) of ECB rate cuts in

2024, from 67 late Friday, and 45 bps for

the Fed.

Some analysts argued that a further widening divergence

between the ECB and the Fed policy paths would weaken the euro

and fuel inflation, forcing the ECB to tighten its monetary

policy. Others highlighted that the ECB can become more cautious

in its easing cycle because of signs of wage data pressure.

"If wage growth does not eventually slow as country-level

data now suggest is a risk, coupled with ECB-speak turning

increasingly more hawkish, especially from dovish members, in

response to data outturns, this risks the ECB eventually cutting

more cautiously," said Andrzej Szczepaniak, economist at Nomura.

ECB's Vice President Luis De Guindos said last week the

number of future rate cuts would also depend on the evolution of

salaries, recalling that the Fed's interest rate decisions

influence the U.S. dollar exchange rate and the global economy.

Italy's 10-year yield fell 0.5 bps to 3.84%. The

gap between Italian and German bonds - a gauge of

the risk premium investors seek to hold bonds of the euro area's

most indebted countries - was at 133 bps from around 120 bps

before the release of the first data about the sale of an

Italian bond aimed at retail investors.

Orders for Italy's new 6-year BTP Valore have risen above 11

billion euros, Bourse data showed on Friday, while the previous

edition attracted bids worth 18.3 billion euros.

Demand from retail investors has supported bond prices for

months, but analysts reckon that the outcome of the recent sale

will not impact Italy's yield spread further.

They said households' allocation towards fixed income has

room to grow as it remains low from a historical perspective,

and global credit risk appetite has recently been the most

reliable guide to pricing Italian sovereign bonds.

The spread between German and Spanish 10-year government

bond yields was flat at 78.5 bps after

Spain's Socialists won the biggest share of the vote in Sunday's

Catalan elections, dealing a serious blow to more than a decade

of independence dreams.