(Updates with late afternoon trading)

By Greta Rosen Fondahn

Jan 7 (Reuters) - German government bond yields rose for

a fifth straight day on Tuesday to trade at their highest in two

months, after a mix of euro zone and U.S. data suggested their

respective central banks may have less room to cut interest

rates than many had thought.

Inflation in the 20 nations sharing the euro picked up to

2.4% last month from 2.2% in November, Eurostat said on Tuesday,

lifted by more expensive energy and stubbornly high services

costs.

This was in line with forecasts in a Reuters poll of

economists and echoed a separate survey of consumer inflation

expectations on Tuesday that also showed a rise.

Surveys released later in the day on U.S. employment and

service-sector activity offered more evidence that the world's

largest economy is resilient, in turn prompting a sell-off in

Treasuries that lifted yields.

German 10-year yields, the benchmark for the

euro zone bloc, rose 2.5 basis points to 2.474%, the highest

since early November, set for a fifth consecutive daily rise.

This week's inflation data will be the last before the

European Central Bank's next meeting on Jan. 30.

The jump in inflation has not shifted near-term bets on rate

cuts - traders are still pricing in one 25-bps cut at the

January meeting. But it could complicate the central bank's

efforts to support euro zone growth.

"A fall in inflation below the ECB target appears unlikely

in the first half of the year," said Commerzbank economist

Vincent Stamer.

"We do expect the ECB to make four more interest rate cuts

this year. But the monetary authorities could act more

cautiously in the future despite the weak economy in the euro

zone."

The ECB aims for 2% inflation.

Markets currently expect the ECB to cut interest rates by

around 100 bps this year.

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

sensitive to changes in ECB rate expectations, was flat at 2.2,

at its highest in two months, having risen by 12 bps since the

start of the year.

The euro zone economy ended 2024 in a fragile state,

according to a survey on Monday. Overall activity contracted for

a second straight month in December, as a modest recovery in the

services industry failed to offset a deeper downturn in

manufacturing.

The ECB opened the door to more easing at its last policy

meeting in December, on the back of an uncertain economic

outlook, while the threat of U.S. tariffs also weighs on growth

prospects.

Still, ECB President Christine Lagarde warned at the time

that domestic inflation remained uncomfortably high.

Italian 10-year bonds underperformed German

Bunds, as yields rose 5.3 bps to 3.629%, their highest in nearly

two months. The premium of Italian bonds over their German peers

widened by 3 bps to 114.2 bps.

(Additional reporting by Amanda Cooper and Tristan Veyet;

Editing by William Maclean and Hugh Lawson)