European bond yields inch lower ahead of US inflation data

LONDON, July 31 (Reuters) - Euro zone government bond yields dipped on Thursday, reversing the previous day's small increase, as investors awaited European and U.S. inflation data and processed the overnight Fed meeting.

Germany's 10-year bond yield dropped just over 1 basis point to 2.68%, having risen a touch the day before, as bonds struggled to break out of their European summer lull. DE10YT=RR

European bonds were helped at the margin by a small decline in Japanese yields after a Bank of Japan policy statement caused market participants to push out expectations for any future interest rate hike. JP/

National euro zone inflation numbers are coming in on Thursday, ahead of bloc-wide data Friday. First up was France where consumer prices rose slightly more than expected in July.

But with euro zone wide inflation around the European Central Bank's 2% target, and the ECB now seemingly on hold, euro zone inflation data is less important for traders than it is elsewhere.

U.S. PCE inflation data, due at 1230 GMT, will be more closely watched.

The Federal Reserve, on Wednesday, kept rates on hold and said it was still in the early stages of understanding how President Donald Trump's policies, including on trade, will affect inflation, jobs and economic growth.

Other moves were largely in line with the German benchmark. Italy's 10-year yield was down 2 bps at 3.53%. IT10YT=RR