(Updates in late European trading)

By Greta Rosen Fondahn

Dec 17 (Reuters) - German government bond yields dipped

on Tuesday after data showed domestic business morale worsening

more than expected in December, while euro zone bond markets

readied for the U.S. Federal Reserve meeting on Wednesday.

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

the euro zone bloc, was last down 3 basis points at 2.22%.

The Ifo Institute said its business climate index for

Germany decreased to 84.7 in December from a slightly downwardly

revised 85.6 the previous month, while analysts polled by

Reuters had forecast a reading of 85.6.

"With today's Ifo index, another disappointing year draws to

a close. The second consecutive year of stagnation, the first

time since the early 2000s," ING analysts said in a note.

"Finally a growing awareness that Germany is again the sick

man of Europe. Well, at least the growth laggard of Europe".

Also on Tuesday Germany's Federal Finance Agency said the

country planned to issue around 380 billion euros ($398.39

billion) in securities through auctions next year, the lowest

level since 2019.

Elsewhere in the euro zone bond yields held broadly steady.

All eyes were on the U.S., where traders price in a

25-basis-point cut from the Fed on Wednesday, but then expect

the central bank to signal a slower pace for cuts in 2025.

"(It's) a waiting game here towards year-end, and with a big

event like the Fed tomorrow there's no need to take new big

positions or new big bets," Piet Haines Christiansen, chief

analyst at Danske Bank, said.

Italy's 10-year yield fell 2 bps to 3.374%,

after rising for three days since last week's ECB meeting.

Earlier in the day the yield touched its highest level since

Nov. 27.

The gap between Italian and German bond yields

stood at 115 bps.

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

to European Central Bank rate expectations, was also 2 bps lower

at 2.036%.

The gap between French and German yields -

seen as a gauge of the extra return investors demand to hold

France's debt - was steady at 80 bps.

The spread reached its widest in around two weeks on Monday,

after credit ratings agency Moody's unexpectedly downgraded

France's rating on Friday.

It briefly touched Monday's high again on Tuesday, before

narrowing again.

($1 = 0.9538 euros)