* U.S. inflation data may back up rate hike prospects
* Traders see 18 pct chance of March hike
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By John Geddie
LONDON, Feb 15 Europe's benchmark German bond
yield held near a one-week high on Wednesday ahead of U.S.
inflation data that could further increase what is still seen as
an outside chance of an interest rate rise in the world's
largest economy next month.
Fed chair Janet Yellen said on Tuesday that despite
considerable uncertainly over economic policy under U.S.
President Donald Trump, the central bank is likely to raise
interest rates at an upcoming meeting.
Most analysts still think that hike is likely to come in
June, but traders see around an 18 percent chance of a hike in
March, up 13 percent from before Yellen's statement, according
to CME's FedWatch tool.
Yellen who said March remained a "live" meeting for a
possible rate hike is due to give further testimony to Congress
on Wednesday which will likely repeat that message.
Yet of more importance will be to see if economic data backs
up the case for monetary tightening. January's inflation print
due at 1330 GMT is the main event alongside retail sales data,
with jobless claims later in the afternoon.
Economists polled by Reuters expect consumer prices to have
risen at an annualised 2.4 percent in January, up from 2.1
"The key focus today remains on US impetus," Commerzbank
strategist Rainer Guntermann said.
"While the run of US activity data is more likely to
slightly disappoint market expectations, bouncing inflation
could still add to Yellen's hawkish guidance."
Germany's 10-year bond yield -- the euro zone
benchmark -- climbed 1 basis point to 0.37 percent, just shy of
a one-week high of 0.38 percent hit after Yellen's speech.
U.S. equivalents were also perched just below an
11-day high hit Tuesday.
Most other euro zone bond yields were 1-2 basis points
higher on the day, holding on to rises seen Tuesday.
Yellen's remarks on Tuesday were swiftly followed by Dallas
Fed President Robert Kaplan urging that it would be "prudent"
for the U.S. central bank to raise rates sooner than later.
But not all policymakers were so certain.
Atlanta Fed President Dennis Lockhart said the U.S. central
bank does not need to rush to raise rates as it evaluates how
the new Trump administration's policies may effect the economy.
Lockhart, who retires from his position at the end of the
month, said he was "not dogmatic" about whether the economy will
likely warrant two or three rate increases this year, but that
in either case "I don't really see compelling reasons to move
ahead in March."
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Editing by Keith Weir)