March 20 (Reuters) - Euro zone government bond yields

dropped on Thursday after U.S. Federal Reserve officials

projected two 25 basis point rate cuts this year, while

expressing concern about growth risks.

The Trump administration's initial policies, including

extensive import tariffs, appear to have tilted the U.S. economy

toward slower growth and at least temporarily higher inflation,

Fed Chair Jerome Powell said on Wednesday.

Markets await the outcome of the Bank of England policy

meeting later in the session.

Germany's 10-year government bond yields were

down 3 basis points (bps) at 2.77%, after reaching 2.748% the

day before, its lowest since March 5. They hit 2.938% last week,

their highest level since October 2023.

Germany's 2-year yields, more sensitive to

European Central Bank policy rates, dropped 3 bps at 2.16%. They

reached a two-week low at 2.149% on Wednesday.

Traders priced in an ECB deposit rate of about 2.02% in

December, down from 2.05% on Wednesday.

They also accounted for an around 50% chance of a 25 bps cut in

April.

The spread between French and German bond yields

- a market gauge of the risk premium investors

demand to hold French debt - dropped to 62.30 bps, its lowest

level since mid-July. Budget minister Amelie de Montchalin said

France's 2024 public accounts may show a deficit a little bit

smaller than the 6% of economic output currently expected.

Italy's 10-year yields fell 4.5 bps to 3.81%.

The gap between Italian and German government bond yields

dropped to 103 bps.