(Updates in late European trading)

By Harry Robertson and Lucy Raitano

LONDON, Feb 11 (Reuters) - German government bond yields

were set for their biggest daily rise in almost four months on

Tuesday as investors grappled with new U.S. tariffs, testimony

from Federal Reserve chair Jerome Powell and higher energy

prices.

The European Union said on Tuesday it would respond with

"firm and proportionate countermeasures" after U.S. President

Donald Trump's decision to impose tariffs on all steel and

aluminium imports, escalating fears of a trade war. However,

bond analysts said the impact of tariffs was hard to gauge and

it was not obvious they were pushing up yields.

Germany's 10-year yield, the benchmark for the euro zone,

was last up 7 basis points (bps) at 2.434%, the

biggest daily increase since October 21. Yields rise as prices

fall, and vice versa.

The rise only took Germany's 10-year bond rate to its

highest in a week, however. Yields fell sharply on the back of

weak data at the turn of the month, causing the German 10-year

yield to fall to its lowest since the start of the year on

February 5.

Jussi Hiljanen, head of European rates strategy at lender

SEB, said a recent rise in U.S. bond yields could be a culprit.

The size of the U.S. economy means American yields tend to set

the tone for markets around the world.

"Bund (German) yields dropped quite significantly after 29

January and as (U.S.) Treasury yields have turned again higher,

there seems to be spill-over to Bunds now," he said.

Bond yields rose further after Fed Chair Jerome Powell said

in prepared remarks to the Senate that the central bank was in

no rush to cut rates again given the economy is "strong

overall". Powell's Senate testimony is the first of two days of

hearings on Capitol Hill.

Italy's 10-year yield rose 9 bps to 3.539%, and

the spread between Italian and German yields

widened 2 bps to 110 bps.

Germany's two-year bond yield, sensitive to

European Central Bank rate expectations, was up 5 basis points

at 2.082%.

Lyn Graham-Taylor, senior fixed income strategist at

Rabobank, said energy prices and high levels of government bond

sales may be contributing to the rise in yields.

Oil prices rose for a third day to their highest in a week,

but remained well below recent highs. Meanwhile,

European natural gas prices rose to a two-year high as cold

weather lifted demand.

Germany, Spain, Italy and Britain were among the countries

and entities raising money from bond and bill sales on Tuesday.

Italy received record demand for a single-tranche deal as it

raised 13 billion euros from its second bond syndication of

2024.