Euro zone bond yields up after US, European policy makers warn about inflation

(Updates prices at 1630 GMT)

By Stefano Rebaudo

Nov 10 (Reuters) - Euro zone government bond yields rose on Friday after central bank officials on both sides of the Atlantic pushed against expectations for rate cuts soon, saying the fight against inflation was not over.

Germany's 10-year government bond yield rose 5 basis points to 2.71%, a day after increasing 4 bps, as it extended the rebound from 2.606% on Wednesday, its lowest level since Sept. 15.

Those increases echoed a move in U.S. Treasuries on Thursday when the U.S. 10-year yield

climbed almost 11 bps, after a weaker-than-expected 30-year bond auction and Federal Reserve Chair Jerome Powell suggested policy rates could rise again.

"Rates markets remain nervous after a number of Fed and ECB officials reminded that further tightening is still possible if needed," said Francesco Di Bella, rate strategist at Unicredit.

"That said, a clear trend has not emerged across euro zone rates markets so far this week, and yields are just a few basis points higher than a week ago."

European Central Bank President Christine Lagarde said on Friday that euro zone inflation could tick up in the coming months, though holding rates at their current level at least for several quarters could still get price growth back to 2%.

Earlier in the week ECB policymaker Joachim Nagel said it was far too early to talk about cutting rates as inflation is a "very greedy beast" that is hard to beat. ECB Vice President Luis de Guindos then made similar comments.

Investors in Italian government bonds, or BTPs, showed some signs of anxiety heading into Friday's Fitch review of Italy's rating.

The gap between Italian and German 10-year bond yields narrowed to 185 bps from 189.9 on Wednesday. It hit 177.70 bps on Monday, its tightest since Sept. 21.

Italy's 10-year yield rose 5.5 bps to 4.57%.

Investors will also focus on Moody's update on Italy on Nov. 17 as the high level of debt makes the country more vulnerable to shocks. Moody's has a Baa3 rating, one notch above the non-investment grade level, with a negative outlook.

But some analysts said a major change was unlikely.

"We expect rating agencies to give euro-sovereigns the benefit of the doubt in the absence of domestic political shocks; we don't expect BTPs to lose their investment grade rating next year," said Michael Leister, head of interest rate strategy at Commerzbank.

Portugal's government bonds have been in focus this week after Prime Minister Antonio Costa resigned amid a corruption investigation, though yield spread versus the German Bund has not widened dramatically.

The gap between Portuguese and German 10-year yields on Tuesday reached 74.2 bps, its highest level in a month, and was last at 69 bps. It has fluctuated between 60 and 75 bps since late June.

Portugal will hold a snap parliamentary election on March 10, its second in as many years.

Spain's yield spread with Germany was last at 104.4 bps, within striking distance of its lowest level since early September of around 101 bps.

The political temperature in Spain has risen as acting Prime Minister Pedro Sanchez bids to clinch another term in office, while on Thursday the former head of the centre-right People's Party in the Catalonia region was shot in the face. Hospital authorities said his life was not in danger.

Negotiations between France and Germany on new fiscal rules remain in the background. (Reporting by Stefano Rebaudo; Editing by Toby Chopra, Peter Graff and Richard Chang) ;))