(Updates at 1610 GMT)

By Stefano Rebaudo

March 1 (Reuters) - Euro zone government bond yieldswere on track to end the week higher, with markets scaling backbets on European Central Bank rate cuts and data showing thebloc's underlying price growth remained stubbornly high.

Inflation across the 20-nation euro zone slowed to 2.6% inFebruary from 2.8% a month earlier, slightly above expectationsfor 2.5%, while core figures declined to 3.1% from 3.3%, missingexpectations for 2.9%.

That came a day after data showed the annual increase inU.S. inflation was the smallest in nearly three years inJanuary, which had supported expectations that the FederalReserve would start cutting interest rates in June and proppedup bond prices on both sides of the Atlantic.

Bond yields move inversely to prices.

Germany's 10-year government bond yield, thebenchmark for the euro area, was set to end the week 4.5 basispoints (bps) higher.

It was last at 2.40%, down a whisker on the day, havingmoved lower in line with a sharp fall by U.S. Treasury yields,after data showed U.S. manufacturing activity slumped inFebruary and as traders digested a string of remarks fromFederal Reserve policy makers including from influentialgovernor Chris Waller about the size and shape of the Fed'sbalance sheet.

The main event of the week for Europe remained the inflationdata, and according to Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, the latest figuresstrengthened the conviction among policymakers that they "needmore time to be convinced that inflation will fall sustainablyto 2%".

"So an interest rate cut in April is now not going tohappen," he added.

Markets were betting on 90 bps of ECB rate cutsin 2024 - compared with 83 bps the daybefore, 100 bps early this week and 150 bps in mid-January.

Markets also see a 90% chance of a first 25 bps rate cut byJune, and just a 20% chance of such a moveby April.

Italy's 10-year government bond yield, thebenchmark for the euro area's periphery, was up 3 bps at 3.87%.

The spread between Italian and German 10-year yields- a gauge of the risk premium investors ask tohold bonds of the most indebted countries - was at 145 bps afterbriefly hitting a fresh 24 month-low at 138.6 in early trading.

Citi said in a note to clients that its analysts thought thepace of spread tightening might slow.

"The periphery might be approaching the limit of itsresilience to reducing rate-cut pricing when supply is turningunsupportive and seasonal bank flows might elude the periphery,"Citi said in a note to clients.

Expectations for a reduction in policy rates usually supportassets of highly indebted countries.

Investors' focus will now turn to the ECB policy meetingnext Thursday.

"With expectations of downward revisions to December growthand inflation projections and recent encouraging data on Q4negotiated wages, we see a dovish bias to this meeting," RohanKhanna, head of euro rates strategy at Barclays, said.

The ECB will first cut interest rates in June, according toa near two-thirds majority of economists in a Reuters poll,though they were split on the chances of the cut coming earlieror later than they expected.

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