(Updates at 1145 GMT)

By Samuel Indyk

LONDON, March 5 (Reuters) - Germany's 10-year bond yield

slipped on Tuesday while the spread between Italian and German

10-year yields was at its tightest since February 2022 as

markets braced for pivotal risk events including the European

Central Bank's policy announcement.

The ECB is seen leaving its main policy rates unchanged on

Thursday, at their record high, with markets watching for clues

from President Christine Lagarde on when interest rate cuts

might begin.

Stickier inflation in Europe and the United States and a

more robust global growth outlook have seen markets scale back

expectations for easing this year, with the timing of the first

interest rate cuts also pushed back.

Money market traders now expect ECB policy easing to begin

in June, with around 4 basis points (bps) of cuts priced in for

April, implying just a 15% chance of lower interest rates then.

At the start of the year, an April rate cut was almost fully

priced in.

Traders are also pricing in only 90 bps of easing this year,

down from around 150 bps, or approximately six quarter-point

cuts, expected in January.

"Given the massive repricing that we've recently seen, it

would take quite a hawkish rhetoric from the ECB to push markets

further in the hawkish direction," said Jussi Hiljanen, head of

rates strategy at lender SEB.

"I think they will essentially repeat the message from

previous meetings that rate hikes are over and that the summer

is probably the right time to begin cutting rates."

Germany's 10-year bond yield, the euro area's

benchmark, was last down 3 bps at 2.365%. The yield hit its

highest since November last Thursday at 2.513%.

The two-year yield, which is sensitive to changes

in policy rate expectations, was last down 1.5 bps at 2.8816%.

Markets will digest Britain's Spring Budget on Wednesday,

the first leg of Federal Reserve Chair Jerome Powell's

semi-annual testimony to Congress, and a raft of data, including

the U.S. payrolls report on Friday.

Meanwhile, Italy's 10-year bond yield, the

benchmark for the euro zone's periphery, was last down 8 bps to

3.743%, pushing the gap between German and Italian 10-year

yields to around 135 bps, its tightest since February 2022.

SEB's Hiljanen said the possible start of a cutting cycle,

improving global risk appetite and the decline in long-end

yields since October was adding to the positive sentiment in

Italian bonds.

"The lower yields become in Italy, the more sustainable

becomes the debt situation," Hiljanen said.