(Updates at 1115 GMT)

By Alun John

LONDON, April 30 (Reuters) - Euro zone government bond

yields ticked higher on Tuesday after data showed inflation in

the bloc steadied in March and the economy rebounded in the

first quarter, not disrupting market bets on a June rate cut,

but leaving the future path open.

The German 10-year bond yield, the benchmark

for the euro zone bloc, was up nearly 4 basis points at 2.56%.

It hit a five-month high of 2.65% last Thursday, but has

since been falling, helped somewhat by initial inflation data

from Germany and Spain on Monday.

In the euro zone,

inflation steadied at 2.4% in April

, Tuesday flash data showed. An important indicator of

underlying price pressures slowed, though closely watched

services inflation was 3.7%, a decline, but possibly still too

high for comfort.

Meanwhile, gross domestic product in the 20-country bloc

increased by an above-expectations 0.3% quarter-on-quarter.

"The key point from the data is the ECB can cut in June

- the bar not to is very high - the question is do they then cut

in July," said Andrzej Szczepaniak, senior European economist at

Nomura.

Government bonds remain highly sensitive to changes in

expectations for central bank interest rates. Market pricing

currently indicates a roughly 70% chance of a 25-basis-point

European Central Bank cut in June, and two or three cuts in

total this year.

Investors will also be watching the Federal Reserve,

which begins its two-day meeting on Tuesday - no rate change is

expected but chair Jerome Powell's Wednesday post-meeting press

conference will be watched closely given sticky U.S. inflation

and strong growth.

Important U.S jobs data is due on Friday.

"The new narrative is what happens if we see what we're

now seeing in the U.S. in the euro zone in a few months' time.

Growth is expected to pick up and should services inflationary

pressure remain sticky for longer, that causes problems for the

ECB even if they begin cutting in June," said Szczepaniak.

Italy's 10-year yield was higher by 3.2 bps​ at

3.85%, and the gap between Italian and German bunds

widened 1 bp to 128 bps.

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

sensitive to European Central Bank rate expectations, was up 3

bps at 2.99%.