LONDON, July 31 (Reuters) - European bond yields hit

multi-month lows on Wednesday due to expectations of more global

monetary easing this year, even as euro zone inflation

unexpectedly rose in July.

Germany's 10-year bond yield, the benchmark for

the euro zone bloc, fell as low as 2.307%, its lowest since

April 2. It was last down 2 basis points (bps) at 2.323%.

Euro zone consumer price growth accelerated to 2.6% this

month from 2.5% in June. Core consumer prices - which exclude

energy, food, alcohol and tobacco - came in unchanged at 2.9%.

But in a more positive sign for the European Central

Bank, growth in services prices eased to 4% from 4.1%.

"There's no material new pressure on services, and core

goods inflation is still very well behaved," said Daiwa Capital

Markets head of research Chris Scicluna.

"Ultimately, we're looking at these numbers and thinking

they're consistent with further easing in September."

The futures market places a more than 90% chance of a

quarter-point rate cut from the ECB at its next policy meeting

in September.

Germany's two-year yield, which is more

sensitive to changes in interest rate expectations, was down 2.5

bps at 2.534%.

"The overall progress (in inflation) we have seen is

encouraging," said Matthew Landon, global market strategist at

J.P. Morgan Private Bank.

"The balance of risks between growth and inflation is

becoming more finely balanced, with recent data suggesting the

European economy is losing some steam."

The

euro zone economy

grew by 0.3% in the second quarter, data showed on Tuesday,

but the underlying picture was mixed.

Output in

Germany

, Europe's largest economy, unexpectedly contracted,

strengthening fears about the country that was once Europe's

powerhouse.

Investors are now turning their focus to the Federal Reserve

meeting later on Wednesday. Any change in interest rates would

come as a major surprise for markets, and the focus is likely to

be on Fed chief Jerome Powell's hints about whether the Fed

could start easing policy in September.

"We expect to see no change but a pretty clear signal that

September is live," Daiwa's Scicluna said.

The benchmark U.S. 10-year yield was little changed on

the day at 4.1433%, having earlier touched its lowest since

mid-March at 4.126%.

Italy's 10-year yield was lower by 3 bps at

3.671%, its lowest since April and the gap between Italian and

German bunds was 134 bps.