(Adds comments, background) By Stefano Rebaudo April 24 (Reuters) - Euro zone government bond yields steadied on Monday, reversing an earlier fall, with investors cautious about an upward repricing of future rate hikes ahead of crucial economic data due later this week. First quarter GDP data for the euro zone, due on Friday, will give an initial indication of the economy's trajectory and the impact of elevated energy prices and tighter banking standards. Inflation will be in the spotlight on the same day with German, French and Spanish data, which might provide clues about the future monetary tightening path. German business morale rose slightly in April, adding to positive signs as Europe's largest economy hopes to have dodged a winter recession, a survey showed on Monday. Germany's 10-year government bond yield , the bloc's benchmark, was up 1 basis points (bps) to 2.493%. It was still almost 30 bps away from its highest level since July 2011 which it hit in early March at 2.77%. "A pick-up in (euro area) headline inflation due to base effects and an unchanged core rate will probably not be enough to motivate a 50bp hike next week, but neither will it herald a pause," said Rainer Guntermann, rates strategist at Commerzbank. Money markets are currently pricing in about a 70% chance of a 25 bps rate hike in May and a 30% chance of a 50 bps move. If core inflation does not come down in April, and credit conditions do not show a serious tightening as a result of recent events, the ECB's decision could sway "towards a 50bps rate hike on May 4," said Reinhard Cluse, economist at UBS. The ECB Bank Lending Survey (BLS) for Q1, and monetary and credit data for March are due on May 2. Meanwhile, hawkish officials at the European Central Bank kept banging the inflation drum and suggesting interest rates must keep rising. Belgian central bank chief Pierre Wunsch said he would not be surprised if the ECB deposit facility rate goes to 4%, adding that the central bank should keep raising rates until wage growth slows. Finnish central bank governor Olli Rehn said on Friday the ECB should maintain a monetary policy that restricts demand. The November 2023 ECB euro short-term rate (ESTR) forward was at 3.75%, implying market expectations for an ECB depo rate of around 3.85% by year-end. Market bets on the ECB terminal rate have hovered aroundg.8% since early last week. Italy's 10-year yield fell 0.5 bps 4.35%, with the spread between Italian and German 10-year yields - a gauge of investor confidence in the more indebted countries of the euro zone – stable at 186 bps. Euro area borrowing costs showed muted reaction to recent changes in sovereign credit ratings. Ireland's 10-year government bond yield rose 1.5 bps to 2.90% after Moody's upgraded its rating to Aa3 from A1 and changed the outlook to stable from positive. Greece's 10-year bond yield fell 3 bps to 4.28% after S&P revised its outlook to positive from stable and affirmed the ratings at BB+/B, arguing that structural reforms, economic resilience, and EU support have improved government finances and financial sector stability. (Reporting by Stefano Rebaudo; editing by Jason Neely and Susan Fenton) ((stefano.rebaudo@thomsonreuters.com;))
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