May 27 (Reuters) - Euro zone government bond yields

edged lower on Monday ahead of key economic data after rising

last week as markets scaled back expectations for the European

Central Bank easing cycle.

Investors will focus on the German consumer price index on

Wednesday, along with euro area inflation figures, and the U.S.

personal consumption expenditure index on Friday. The ECB's

consumer expectations survey will be released on Tuesday, and

the Federal Reserve's Beige Book on Wednesday.

Euro zone bond yields recorded their biggest rise in a month

last week after solid economic data.

"Our economists broadly concur with the consensus that

headline (euro area) inflation should tick up while the decline

in core inflation is likely to stall," said Hauke Siemssen, rate

strategist at Commerzbank.

"This outcome could add spice to the ECB's assessment that

headline and core inflation dynamics are both decelerating."

Money markets last priced in 58 basis points (bps) of ECB

monetary easing in 2024, which implies two

rate cuts and an around 30% chance of a third move by year-end.

The ECB is ready to cut interest rates next month but policy

must continue to be restrictive this year as wage growth will

not normalise until 2026, ECB chief economist Philip Lane told

the Financial Times.

Markets take for granted an ECB cut in June, analysts have

said, but have also started discounting less than one cut every

quarter, a move which derivatives have priced in for months.

Germany's two-year government bond yield, more

sensitive to policy rate expectations, was down 1.5 bps at 3.07%

after hitting 3.124% on Friday, its highest since mid-November.

Fed Governor Christopher Waller said on Friday that the

so-called R-star - the rate that neither stimulates nor

restricts the economy - keeping inflation at the central bank's

target could rise after years of declines.

Germany's 10-year yield, the bloc's benchmark,

dropped 2 bps to 2.56%.

German business morale stagnated in May, falling short of a

forecast improvement, according to a survey on Monday.

Italy's 10-year yield was down 2.5 bps at

3.43%, while the gap between Italian and German yields

was at 129 bps.

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

-- a gauge of the expected policy path divergence

between the ECB and the Fed -- widened 2 bps to 190.3 bps.

BofA economists expect the divergence between the ECB and

the Fed monetary policy to be wider than the current market

expectations and the spread between U.S. and German yields to

break recent peaks by year-end.