Euro zone bond yields fall after ECB speakers sound dovish note

(Updates throughout; refreshes market pricing at 1600 GMT)

By Amanda Cooper

LONDON, Feb 23 (Reuters) - Euro zone government bonds rallied on Friday, erasing earlier losses, after several European Central Bank speakers offered investors a glimmer of optimism over possible rate cuts.

German Bund yields had been on track for their third straight weekly rise earlier on Friday, after economic data and a range of central bank officials prompted investors to rethink quite how quickly interest rates might fall this year.

ECB Governing Council member Mario Centeno told Bloomberg News in an interview on Friday afternoon that the central bank should be open to the idea of a rate cut as early as March, even if this was unlikely.

Earlier in the day, fellow ECB official Isabel Schnabel, one of the most hawkish members of the Governing Council, said inflation expectations looked under control and euro zone companies were starting to absorb high wage growth.

Germany's 10-year yield, the benchmark for the euro zone, was down 5 basis points (bps) to 2.385%. It had traded as high as 2.478% earlier, the most since late November.

"The problem for the ECB ... is that it hasn't been good across the euro zone, they should probably worry about the German economy because of its close linkage with the Chinese one and, really, what they should probably be doing is cutting rates," Trade Nation market analyst David Morrison said.

"But I imagine there is quite a bit of pushback within the ECB against the idea of cutting rates too early. The big concern is they cut and a few months later, they're having to push them up again," he said.

ECB President Christine Lagarde, at a press conference in Belgium, noted that relatively benign fourth-quarter wage growth in the euro zone had been encouraging, but not enough to persuade policymakers that inflation was no longer a problem.

Indeed, data on Friday showed inflation expectations among euro zone consumers ticked up to 3.3% for the year ahead, from 3.2% previously. Separate figures showed German business sentiment brightened slightly despite weakness in Europe's largest economy.

Fellow ECB member Joachim Nagel, meanwhile, said the ECB should resist the temptation to cut rates early.

Investors on Friday were still expecting roughly 90 bps of interest rate cuts from the ECB this year, according to money market pricing. That was down from around 102 bps on Monday and more than 150 bps at the start of February.

Germany's 2-year bond yield, which is sensitive to ECB rate expectations, was last down 3.8 bps at 2.874%, just below its highest level since late November and set for a third weekly increase.

Survey-based data on Thursday showed the downturn in euro zone business activity eased in February, hinting at signs of recovery, even as Germany's slump deepened.

Italy's 10-year bond yield was last down 8.7 bps at 3.829%. The closely watched gap between Italy and Germany's 10-year bonds tracked lower to 142 bps, around its lowest since early 2022.

(Additional reporting by Harry Robertson; editing by Mark Heinrich, Ros Russell and Alex Richardson)