(Updates with European morning trading, bund yield reaching new

high)

By Samuel Indyk

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

rose slightly on Wednesday to a more than five-month high,

supported by 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, data showed on Tuesday, although analysts said that

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

Central Bank later this month.

Markets are pricing about 24 basis points (bps) of easing

from the ECB at January's meeting, implying about a 96% chance

of a quarter-point cut.

But traders have trimmed expectations for future rate cuts

over the last month and are now pricing around 92 bps of easing

in 2025, implying three 25 basis point moves and almost 70%

chance of a fourth.

"The repricing of the ECB policy path has been an important

driver (of higher bond yields)," said Jussi Hiljanen, chief

rates strategist at SEB.

Germany's 10-year yield, the euro zone

benchmark, was last up 1.5 bps on the day at 2.5%, its highest

level since July last year. Bond yields move inversely to

prices.

Germany's policy-sensitive two-year yield was

little changed at 2.203%, just below the two-month high of

2.214% reached on Monday.

Europe's bond markets are having to absorb heavy issuance to

start the year, with Germany selling 5 billion euros of 10-year

bunds and Italy set to sell new 10-year and 20-year green bonds

via syndication on Wednesday.

"January faces heavy supply which can weigh on fixed

income," wrote Jefferies economist Mohit Kumar in a note.

Analysts at UniCredit expect euro zone debt agencies to sell

a total of 135 billion euros of bonds this month, roughly 10% of

the total expected in 2025.

Italy's 10-year yield fell 0.5 bps to 3.63%,

pushing the spread between Italian and German 10-year yields

slightly tighter at 112 bps.

Better than expected U.S. data on Tuesday has also pushed

yields higher this week, with services sector activity

accelerating and job openings exceeding forecasts.

Attention was now turning to Wednesday's release of the

minutes from the Federal Reserve's December meeting, where the

central bank lowered rates by 25 bps but signalled a slower pace

of rate cuts ahead.

(Reporting by Samuel Indyk; Editing by Christopher Cushing and

Ros Russell)