(Updates at 1055 GMT)

By Harry Robertson and Alun John

LONDON, Aug 20 (Reuters) - Euro zone bond yields inched

lower on Tuesday as investors waited for fresh economic data on

Thursday and a meeting of the world's central bankers later in

the week.

A wave of calm has swept over markets after a bout of

volatility earlier this month, with strong U.S. economic data

soothing fears that the world's biggest economy could be heading

for a recession.

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

the euro zone, was 1 basis point (bp) lower at 2.248%, little

changed from the start of the week.

After a slow start to the week investors will have

more to ponder

on Thursday when purchasing managers' index surveys -

gauges of the health of the private sector - are released for

the euro zone, Britain and the United States.

The Federal Reserve's annual gathering of the world's

central bankers at Jackson Hole in Wyoming also

kicks off on Thursday

.

The highlight will be a speech by Fed Chair Jerome

Powell. Investors will listen closely for any notes of concern

about the economy or hints about the size of a potential rate

cut in September.

Traders almost fully priced in an outsized 50-bp Fed

September rate cut early in August after a weaker-than-expected

jobs report. But data since then has reined in those bets, with

markets now seeing a 22% chance of a 50-bp reduction.

Germany's two-year bond yield, which is more

sensitive to European Central Bank rate expectations, was 1 bp

lower at 2.438%.

Italy's 10-year yield was flat at 3.625%, and

the gap between Italian and German 10-year yields

was 137 bps, steady on the day but down from more than 150 bps

in early August.

The size and importance of the U.S. economy and the dollar

has long meant European bond markets are heavily influenced by

American data and central bank expectations.

Data on Tuesday

showed growth in negotiated wages across Germany slowed in

the second quarter, potentially bolstering the case for another

ECB rate cut in September.

The

Bundesbank said

in a report that Germany's economy, which has been weighing

on the euro zone, is unlikely to recover quickly.

Elsewhere, Sweden's central bank on Tuesday

cut interest rates

by 25 bps to 3.5% after a rapid fall in inflation.