(Updates throughout, adds analyst comments)

By Joice Alves

LONDON, May 29 (Reuters) - Euro zone bond yields surged

to their highest in over a month on Wednesday after data showed

inflation rising in three German states, but investors awaited

the national figure for further clues on the European Central

Bank's rate outlook.

Inflation in three German states inched up in May, although

price growth did slow in one state.

The inflation rate in North Rhine-Westphalia, Germany's most

populous state, rose to 2.5% year-on-year in May from 2.3% in

April.

Economists will pay close attention to the national data due

at 1200 GMT for clues on how much the ECB will cut rates this

year. An ECB rate cut on June 6 appears certain, according to

all 82 economists polled by Reuters, a majority of whom

predicted two further reductions in September and December.

Germany publishes its figures before euro zone inflation and

the U.S. personal consumption expenditure data which are due to

be released on Friday.

The German 10-year bond yield, the benchmark for

the euro zone bloc, rose 4.8 basis points (bps) to 2.63% for its

highest level since April 25.

Franziska Palmas, senior Europe economist at Capital

Economics, said a weighted average of inflation figures for the

six major German states suggests that German headline HICP will

likely rise to 2.5% in May from 2.4% in April.

A separate Reuters poll sees inflation in Germany rising to

2.7% in May.

"CPI inflation data published by the major German states

this morning suggest that both German and euro-zone HICP

inflation may come in a bit lower than expected," Palmas said.

"The ECB has been paying particular attention to services

inflation, but we don't think the rise in May will deter it from

cutting rates next week given that it is driven by temporary

factors. Nevertheless, a pause in

July now seems more likely," she added.

Money market traders are almost certain that the ECB will

cut rates next week and are pricing in around 60 bps of monetary

easing by year-end.

Italy's 10-year yield also touched a more than

one-month high and was last up 4.2 bps at 3.94% while the gap

between Italian and German bunds was at 130 bps.

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

sensitive to ECB rate expectations, was 1.9 bps higher at

3.07%.

The spread between U.S. 10-year Treasuries and German bunds

narrowed by 1.6 points to 193 bps, having briefly

surged to 196 bps, its highest since mid May earlier in the day.