LONDON, March 27 (Reuters) - Euro zone bond yields fell

on Thursday after U.S. President Donald Trump announced a 25%

tariff on imported vehicles, a move that could dent the bloc's

economy given Germany's focus on car-making.

Germany's 2-year bond yield, which is sensitive

to European Central Bank interest rate expectations, fell 5

basis points (bps) in early trading to 2.07%, its lowest since

March 4.

Traders in money markets added to their bets on ECB interest

rate cuts and last priced in a rate of 1.94% by the end of the

year, compared with 1.98% on Wednesday. Rates currently stand at

2.5%.

The new levies on cars and light trucks will take effect on

April 3, the day after Trump plans to announce reciprocal

tariffs aimed at the countries responsible for the bulk of the

U.S. trade deficit.

"The escalation risks further dampening growth in several

countries through cost increases and generally increased

uncertainty," said Daniel Bergvall, head of economic forecasting

at SEB.

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

the euro zone bloc, fell 4 bps to 2.755%.

Italy's 10-year yield was lower by 3 bps at

3.869%, and the gap between Italian and German 10-year yields

held broadly steady at 109 bps.