LONDON, Jan 8 (Reuters) - Germany's 10-year bund yield

fell slightly on Wednesday after hitting a two-month high the

day before on accelerating euro zone inflation, elevated bond

supply and strong U.S. data.

Inflation in the euro zone reached 2.4% last month from 2.2%

in December, in line with expectations, although analysts said

that was unlikely to derail chances of a rate cut from the

European Central Bank later this month.

Germany's 10-year yield, the euro zone

benchmark, was last down 1 basis point at 2.477%. It hit 2.49%

on Tuesday, its highest since Nov. 7. Bond yields move inversely

to prices.

Germany's policy-sensitive two-year yield fell 2

bps to 2.185%, just below the two-month high of 2.214% reached

on Monday.

Markets are pricing about 24 bps of easing from the ECB at

January's meeting, implying about a 96% chance of a

quarter-point cut.

By the end of the year, traders are pricing around 92 bps of

easing, implying three 25 basis point moves and almost 70%

chance of a fourth.

Italy's 10-year yield fell 1 bp to 3.628%,

keeping the spread between Italian and German 10-year yields

steady at 114 bps.