Euro zone yields rise after bloc's inflation and US wage data

(Updates headline, prices at 1420 GMT)

By Alun John and Joice Alves

LONDON, April 30 (Reuters) - Euro zone government bond yields rose on Tuesday as inflation in the bloc steadied in March and the economy rebounded in the first quarter, while separate data showed U.S. labour costs increased more than expected in the first quarter.

While the U.S. data could remove some pressure on the Federal Reserve to cut rates, the euro zone figures have not disrupted market bets on a European Central Bank rate cut in June - but left the future path open.

The Employment Cost Index (ECI), the broadest U.S. measure of labour costs, increased 1.2% last quarter. Economists polled by Reuters had forecast the ECI would advance 1.0%.

In the euro zone, inflation steadied at 2.4% in April, Tuesday flash data showed. An important indicator of underlying price pressures slowed, but services inflation was 3.7%, a decline but possibly still too high for comfort.

Meanwhile, gross domestic product in the 20-country bloc increased by an above-expectation 0.3% quarter-on-quarter.

The German 10-year bond yield, the benchmark for the euro zone bloc, was up nearly 5 basis points at 2.57%.

It hit a five-month high of 2.65% last Thursday, but has since been falling, helped somewhat by initial inflation data from Germany and Spain on Monday.

"The key point from the data is the ECB can cut in June - the bar not to is very high - the question is do they then cut in July," said Andrzej Szczepaniak, senior European economist at Nomura.

Government bonds remain highly sensitive to changes in expectations for central bank interest rates. Market pricing currently indicates a roughly 70% chance of a 25-basis-point ECB cut in June, and two or three cuts in total this year.

Investors will also be watching the Federal Reserve, which begins its two-day meeting on Tuesday - no rate change is expected but chair Jerome Powell's Wednesday post-meeting press conference will be watched closely given sticky U.S. inflation and strong growth.

"The new narrative is what happens if we see what we're now seeing in the U.S. in the euro zone in a few months' time. Growth is expected to pick up and should services inflationary pressure remain sticky for longer, that causes problems for the ECB even if they begin cutting in June," said Szczepaniak.

Italy's 10-year yield was higher by 4.4 bps​ at 3.86%, and the gap between Italian and German bunds widened 2 bp to 128.8 bps.

Germany's two-year bond yield, which is more sensitive to European Central Bank rate expectations, was up 6.6 bps at 3.02%. (Reporting by Alun John and Joice Alves. Editing by Ros Russell, Nick Macfie and Alison Williams)