UPDATE 3-Euro zone bond yields jump, shrugging off fall in U.S. inflation

(Recasts to focus on rise in yields, adds analyst and ECB official comments, updates prices) By Harry Robertson and Samuel Indyk LONDON, April 12 (Reuters) - Euro zone government bond yields jumped on Wednesday in afternoon trading in Europe, despite data showing that U.S. inflation cooled in March. Germany's 2-year bond yield , which is sensitive to changes in interest rate expectations, initially fell after the U.S. data. It then reversed course and was last up 9 basis points (bps) at 2.8%. Germany's 10-year government bond yield , the euro zone's benchmark, was last up 8 bps at 2.382%. Yields move inversely to prices. Analysts said the about-turn was somewhat confusing given the cooling of price pressures in the U.S, but they said "hawkish" comments from European Central Bank official Robert Holzmann had likely added to the upward pressure on yields. Holzmann, the head of Austria's central bank, told a German newspaper that the ECB needs to keep hiking interest rates and that another 50-basis-point hike in May is warranted. "If we do not act vigorously enough now, the inflation problem will only increase and we will end up being even stricter," he told Boersen Zeitung. Data on Wednesday showed that U.S. inflation, as measured by the consumer price index (CPI), came in at 5% year-on-year in March, down from 6% in February and below economists' expectations of a 5.2% reading. Core CPI - which strips out volatile food and energy prices - gained 5.6% in March after rising 5.5% in February but was in line with expectations. U.S. bond yields fell as investors took stock of data that could reduce the pressure on the Federal Reserve to keep raising interest rates. The U.S. 10-year yield was last down slightly, helping the gap between German and U.S. 10-year yields narrow to the smallest since July 2020, at 103 bps. "I think the still hawkish tone from ECB speakers is helping tighten the spread between EUR and USD yields," said Antoine Bouvet, head of European rates strategy at ING. "I would add that I think the Treasury rally on the CPI miss was probably exaggerated given... core inflation is still sticky." Earlier in the day, ECB Vice-President Luis de Guindos said the central bank was "not so optimsitic" about core inflation in the euro zone, which is currently running at a record high of 5.7%. Italy's 10-year government bond yield was last up 8 bps at 4.24%. The closely watched yield gap between Italian and German 10-year debt was little changed at 184 bps. Market pricing showed that traders expect the ECB's main rate to peak above 3.7% in November, from its current 3% level. Investors were also awaiting the minutes from the Fed's most recent meeting, due at 1800 GMT, which could indicate how recent turmoil in the financial system will impact the path for monetary policy. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ CPI 2 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Harry Robertson and Samuel Indyk, additional reporting by Dhara Ranasinghe; Editing by Raissa Kasolowsky, Bernadette Baum and Emelia Sithole-Matarise)

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