* 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 (Reuters) - 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 7.94 percent.
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 Trevelyan)