(Recasts lede, adds comments, background)

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US data will be key for shaping the Fed's policy outlook

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Man Group strategist mentions concerns about US inflation

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Economists warn of bleak outlook for the euro area

By Stefano Rebaudo

Nov 13 (Reuters) - Bund yields rose on Thursday after

three straight days of modest declines as investors awaited U.S.

economic data, while Germany's growth figures raised questions

about the size of any boost to growth from the government's

fiscal stimulus.

German borrowing costs have been hovering near levels last

seen in mid-January, before a March political deal in Germany to

increase spending on defence and infrastructure.

New U.S. data will be key to shaping expectations for the

Federal Reserve's policy path, which could also influence views

on the euro area rate outlook.

Germany's 10-year government bond yields rose

2.5 basis points (bps) to 2.66%, after falling 2 bps in three

sessions. They were at 2.63% in mid-January.

Markets tweaked their bets on Fed policy rate cuts after

U.S. President Donald Trump on Wednesday signed legislation

ending the government shutdown, with lingering economic

uncertainty keeping investors cautious.

MARKETS PRICE 53% CHANCE OF 25-BP EASING MOVE

They priced a 53% chance of a 25 basis-point easing move by

year-end from 60% the day before and about 65% early this week,

according to CME Group's FedWatch tool.

"Hopefully, it (the economic data reporting) will come

quickly as the shutdown has lasted more than 40 days and is

clearly weighing down on the U.S. economy and sentiment," said

Kristina Hooper, chief market strategist at Man Group.

"There seems to be growing concern about persistent

inflation, which could be an obstacle to more rate cuts any time

soon," she added.

In the euro area, traders were still pricing in about a 40%

chance of a 25-basis-point ECB rate cut by September

, and a depo rate at 1.97% by March 2027, versus

the current 2%.

Euro zone industrial production rose far less in September

than economists had predicted, though the big economies fared

well and the shortfall was due to volatility among large foreign

companies based in Ireland for tax reasons.

"The timelier evidence on overall industry is consistent

with output stagnating in year-on-year terms at the start of the

fourth quarter," said Jack Allen-Reynolds, deputy chief euro

zone economist at Capital Economics.

"With euro zone manufacturers facing major structural

headwinds, we think that the medium-term outlook is pretty

bleak," he added.

The German Council of Economic Experts on Wednesday cut its

forecast for the German economy in 2026 and predicted only

modest growth this year.

Germany's 2-year yields, more sensitive to

expectations for ECB policy rate outlook, were up 2 bps at

2.02%.

Euro area 2-year borrowing costs hovered just below levels

seen after the ECB's uneventful October 30 policy meeting, as

markets have priced in a "higher-for-longer" rate path since the

summer.

Italy's 10-year government bond yield rose 2.5

bps to 3.39%, while the gap over safe-haven German Bunds -- a

gauge of the extra return investors demand to hold Italian debt

instead of German bonds - was at around 72 bps, its tightest

level since 2010.