Feb 28 (Reuters) - German short-dated yields fell to a

10-week low on Friday as traders increased their bets on future

European Central Bank rate cuts, pricing in a 50% chance of a

fourth easing move amid concerns about the bloc's economy.

U.S. President Donald Trump floated a 25% "reciprocal"

tariff on European cars and other goods on Wednesday, sparking

renewed worries about a possible trade war.

Inflation eased in four sizeable German states, according to

preliminary data on Friday, suggesting Germany's national

inflation rate could also slow down this month, in line with

analysts' forecasts.

French inflation dropped below 1% for the first time in four

years in February.

Germany's 2-year government bond yield, more

sensitive to European Central Bank policy rates, hit 1.999%, its

lowest level since December 20 and was last down 2 bps at 2.01%.

Money markets priced in a European Central Bank depo rate at

around 1.88% in December from the current

2.75%, implying three 25 bps rate cuts and an about 50% chance

of a fourth move. They priced a depo rate at 1.97% last week.

"The specific mentioning of the auto sector (in possible

U.S. tariffs against Europe) could also mean a repeat of the

2018 tariff threat against that sector only," said Citi.

"This makes a difference for the size of the impact -- car

exports are only 10% of total European Union (EU) exports to the

U.S. -- and the distribution of losses against EU member

states," it added.

Euro area borrowing costs fell after the German election on

Sunday as winner Friedrich Merz ruled out a quick reform to

state borrowing limits.

Analysts said an increase in Germany's fiscal spending could

boost the euro area's economy.

Germany's 10-year government bond yield, the

benchmark for the broader euro zone, was down 2 bps at 2.39%.

Markets await U.S. data later in the session, which could

provide more clues about the Federal Reserve's easing path.

Markets price in 62 bps of rate cuts by year-end.

Euro zone consumers lowered their near-term inflation

expectations last month but continued to see economic

contraction ahead, an ECB survey showed on Friday.

The ECB will meet next week, with investors widely expecting

a 25 bps rate cut.

"The critical communication to watch next week is whether

the ECB drops the 'restrictive' label from its official stance,"

said Carsten Brzeski, global head of macro at ING, recalling

that hawkish ECB officials, including Isabel Schnabel, have

started to push back against additional rate cuts.

"If it does, a pause in the rate cut cycle could become an

option. If not, the current pace of rate cuts will continue."

Most analysts believe that the structural weakness of the

economy, looming tariffs and low inflationary pressure will

force the ECB to cut rates to at least 2%, even if not all the

ECB members would like that.

Italy's 10-year yield was down 2 bps at 3.47%.

The yield gap between Italian and German government bonds

was 107 bps.