* U.S. data backs up rate hike prospects
* Traders see 27 pct chance of March hike
* Greek yields climb as Eurogroup deal ruled out
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
(Updates with U.S. data)
By John Geddie
LONDON, Feb 15 Europe's benchmark German bond
yield hit a one-and-a-half week high on Wednesday after data
reinforced the view that a strengthening U.S. economy could
encourage the Federal Reserve to lift interest rates sooner
rather than later.
U.S. retail sales rose more than expected in January, while
consumer prices jumped 0.6 percent last month -- the largest
increase since February 2013.
The strong data came a day after Fed chair Janet Yellen said
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 a hike is likely to come in
June, but traders now see around a 27 percent chance of a hike
in March, up from 18 percent earlier in the day.
Yellen, who said March remained a "live" meeting for a
possible rate hike, repeated that message in further testimony
to Congress on Wednesday.
"Markets are pricing in a higher probability of a March rate
hike but it's not a done deal," said Chris Scicluna, head of
economic research at Daiwa Capital Markets.
Germany's 10-year bond yield - the euro zone
benchmark - rose 2 basis points to nudge past Tuesday's peak and
hit a 1-1/2 week high of 0.39 percent.
U.S. equivalents hit a 2-1/2 week peak after the
data at 2.52 percent.
Most other euro zone bonds were 2-4 bps higher on the day,
with Greek debt being the notable underperformer after Eurogroup
head Jeroen Dijsselbloem ruled out a bailout deal by the next
meeting of finance ministers on Feb. 20.
Greek two-year bond yields climbed some 50 bps to 9.74
percent, while 10-year yields were 25 bps higher at
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 affect 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
(Additional reporting by Dhara Ranasinghe; Editing by Mark