(Updates at 0920 GMT)

By Alun John

LONDON, May 31 (Reuters) -

German government bond yields rose to their highest in over

six months on Friday, after data showed inflation in the

currency bloc rose in May and ahead of U.S. inflation figures,

both of which will shape central banks' rate cutting plans.

The higher-than expected euro zone inflation print of 2.6%

year on year is highly unlikely to disrupt market's confidence

in a European Central Bank rate cut next week, but casts doubt

on the central bank's path after that.

Markets are currently pricing around 57 bps of rate cuts

in 2024, and are indicating a 25 basis point cut in June, and

one more by year end. In recent weeks, they have been gradually

paring back expectations of a third cut this year.

The German 10-year bond yield, the benchmark for

the euro zone bloc, was last 4.6 basis points higher on the day

at 2.7%, its highest since mid-November.

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

sensitive to European Central Bank rate expectations, was 4 bps

higher at 3.12%, also an over six-month high.

The increase in the euro zone inflation rate to 2.6% in

May was expected, and the data is "neither good nor bad," ECB

governing council member

Fabio Panetta

said on Friday."

The data will nonetheless shape the narrative at the

ECB's meeting on June 6. Recent communication from rate setters

indicate a rate cut is all but certain, but they have given few

indications for their plans after that.

"The expected ECB policy easing would likely provide

short-term support to (European) rates, reducing the likelihood

of further sell-off from the already high levels," said UBS

analysts in a note.

"But for European rates to rally significantly from this

point, we would need to see more clarity on the ECB's

rate-cutting cycle. The ECB appears less committal after June

and it will continue to follow a data dependant stance, in our

view."

U.S. PCE inflation for April, the Federal Reserve's

preferred inflation gauge, is due at 1230 GMT. (0830 ET)

That will shape expectations for when the Fed cuts

rates, driving moves in U.S. Treasuries, and also have an effect

on European rates.

The spread between U.S. 10-year Treasuries and German

bunds widened 0.2 bps to 189 bps.

Italy's 10-year yield was higher by 4.3 basis

points​ at 4.00%, rising after the inflation data and the gap

between Italian and German bunds widened 0.4 basis

points to 129 bps.