Euro area bond yields waver as German inflation and economy cools

(Updates with German inflation data, updates prices, adds chart)

By Harry Robertson and Stefano Rebaudo

Oct 30 (Reuters) - Euro zone bond yields were mixed on Monday as data showed inflation and economic growth is cooling in Germany, the bloc's biggest economy.

Germany's 10-year bond yield, the benchmark for the bloc, was last up less than 1 basis point (bp) at 2.839% on Monday, after spending much of the session lower. It has fallen since hitting a 12-year high of 3.024% in early October.

German inflation slowed sharply to 3% year-on-year in October, preliminary figures released on Monday showed. That was down from 4.3% in September and below the 3.3% reading economists expected.

Separate data showed that the German economy shrank 0.1% in the third quarter compared to the previous three month period, a marginally better outcome than analysts predicted.

"Less elevated energy costs and base effects from last year’s surge in prices helped German inflation take another large downward step in October," said Berenberg economist Salomon Fiedler, in emailed comments.

Italy's 10-year yield was 6 bps lower at 4.754%. It hit an 11-year high of 5.035% on Oct. 19. Yields move inversely to prices.

The economic data came at the start of a busy week for financial markets, with the Bank of Japan, Federal Reserve and Bank of England due to set interest rates on Tuesday, Wednesday and Thursday respectively.

Euro zone inflation data is due on Tuesday, before U.S. employment data on Friday. Investors are also keeping an eye on the Israel-Hamas conflict.

"The data published by individual member states so far fit our call for a substantial decline in the aggregate euro zone rate due tomorrow," said Fiedler.

Economists polled by Reuters expect euro zone inflation slowed to 3.1% in October from 4.3% in September.

Very strong U.S. economic data has caused Treasury yields to surge over the last month, dragging yields on euro zone bonds higher despite the bloc's much less impressive growth.

High levels of U.S. bond issuance has also been a factor and will come into focus again on Monday when the Treasury gives its financing estimate for the fourth quarter.

The gap between Italian and German 10-year yields - a gauge of the risk premium investors ask to hold debt of the euro zone's most indebted countries - narrowed to 191 bps, around its tightest level since early October.

Germany's 2-year bond yield, which is sensitive to interest rate expectations, was last 1 bp lower at 3.089%. It remains well below a 15-year high of 3.393% reached in July.

Even as inflation slows, two ECB policymakers pushed back on Monday against market bets that the central bank will start cutting interest rates in the first half of next year.

(Reporting by Harry Robertson and Stefano Rebaudo, editing by Angus MacSwan and Emelia Sithole-Matarise)