LONDON, Aug 14 (Reuters) -

Euro zone government bond yields rose on Friday, driven by

strong U.S. economic data after dropping earlier in the session

on dovish remarks from Treasury Secretary Scott Bessent.

U.S. producer prices increased more than expected in

July, suggesting a

broader pickup in inflation

in the months ahead.

In an interview on Bloomberg TV, U.S. President Donald

Trump's influential right-hand man on the economy said on

Thursday there was "a good chance" the Federal Reserve lowers

rates by 50 basis points (bps) when it convenes next month.

On Friday he argued that the central bank could "start with

25 (basis points) and then accelerate," underlining he did not

tell the Fed what to do.

Investors priced in around a 90% chance of a Fed rate cut

next month, and a total of 124 basis points of easing by October

2026. Money market futures imply a European Central Bank depo

rate at 1.9% from the current 2% at the end 2026.

"We haven't had a major catalyst from the euro area so, more

broadly, moves have been driven by the U.S.," said Mohamad

Al-Saraf, forex and fixed income research associate at Danske

Bank.

"In general, moves this week have been driven by the

better-than-feared U.S. inflation report and it now looks pretty

much a done deal that the Fed will cut next month. The question

is whether they go for 25 or 50 basis points."

Tuesday's U.S.

inflation report

was a mixed bag, with headline consumer prices rising

marginally but underlying measures showing signs of building

price pressures.

Germany's two-year yield, which is sensitive to

changes in monetary policy expectations, was up one bp at 1.95%.

It fell 3.5 bps on Wednesday.

Germany's 10-year government bond yield, the

benchmark for the euro area, rose 3 bps to 2.70% after falling

6.5 bps on Wednesday.

Italy's 10-year bond yield fell 3.5 bps to

3.51%, pushing the spread between Italian and German 10-year

yields to 70.2 bps, the tightest since at least

2011, according to LSEG data.

The yield gap between Italian and French 10-year yields

narrowed to about 14 bps, reflecting increasing

concerns about France's fiscal trajectory

.

France unveiled a 2026 budget plan in July that included

almost 44 billion euros ($51 billion) of

cuts

, which will probably draw resistance from Socialist

lawmakers when parliament returns from recess next month.

Worries about France's debt sustainability have been

driving the narrower spread between French and Italian yields,

according to Danske Bank's Al-Saraf.

Investors were awaiting U.S. factory inflation and jobless

claims data due later on Thursday, as well as the Alaska summit

between Trump and Russian President Vladimir Putin on Friday.

Analysts have said a ceasefire in Ukraine could support

riskier assets and weigh on government bond prices, lifting

yields.

Germany's 30-year yield, which touched an

11-year high of 3.309% on Tuesday, was up 3 bps at 3.26%.