By Ozan Ergenay

LONDON, Nov 27 (Reuters) - Euro zone bond yields

steadied in early trading on Thursday, set for a second straight

weekly decline, amid subdued activity across most markets due to

the U.S. Thanksgiving holiday and growing expectations of a

December rate cut by the Fed.

Germany's 10-year Bund yield, the euro zone's

benchmark, rose 0.9 basis points to 2.683%, while French 10-year

yields held at 3.416% and Italian yields

were up 1.7 bps at 3.411%.

With the European Central Bank firmly on hold, European

rates have been fairly muted in recent weeks. Spillovers from

moves in stocks or U.S. and Japanese government bonds have not

been sufficient to drive significant shifts either.

Later on Thursday, the ECB will release the minutes of its

October policy meeting, while a number of the central bank's

officials are scheduled to speak.

Euro zone bond yields have diverged sharply from those in

the United States this month, as investors are pricing in a

series of Fed rate cuts over the coming year, while the ECB is

not expected to change monetary policy, according to money

markets.

Peter Vanden Houte, chief economist at ING, said in a note

to clients that euro zone inflation data still shows some

stickiness, and selling price expectations climbed above the

long-term average in every sector with consumers anticipating

faster price increases ahead.

"What looks certain is that the region's economy remains on

a growth track, albeit a subdued one. A meaningful uptick may

not occur until Germany's budgetary stimulus kicks in, expected

no sooner than the second half of 2026," he said.

"Given these trends, the ECB will likely keep interest rates

unchanged, there's no need for more stimulus and inflation does

not warrant any drastic new monetary policies."

Bund yields have risen by around 5 bps this month, while

10-year U.S. Treasury yields have fallen 10 bps,

bringing the two closer together than at any time in nearly two

years.

Major U.S. economic data for retail sales and producer

prices published on Tuesday reinforced expectations of a

December rate cut and investors bet the leading candidate to be

the next Fed Chair may pursue a more dovish policy.

In the UK, activity was also more subdued after the British

finance minister presented a budget on Wednesday that alleviated

some concern about the government's long-term finances.

Antonio Ruggiero, FX & macro strategist at Convera, said

markets took the UK budget in their stride. But the calm won't

last, he added, with the heavy use of back-loaded tax measures

raising doubts about how reliable Chancellor Rachel Reeves'

26-billion pound ($34.40-billion) revenue plan really is.

UK 30-year gilt yields, which are more sensitive

to long-term fiscal issues, were up 1.9 bps at 5.23%, retracing

some of Wednesday's near-12 bp drop, the biggest since April,

partly as a result of an expected decline in supply in the

coming year.

UK 10-year yields were last up 4.4 bps at

4.471%, hitting an almost two-week high.

($1 = 0.7557 pounds)