* German, French and Spanish yields hit fresh lows
* U.S. Treasury yields hit fresh seven-month trough
* Fed widely expected to raise rates
* But weak growth, inflation expected to feed caution
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
(Adds U.S. CPI data, updates prices)
By John Geddie
LONDON, June 14 Europe's benchmark bond yield
hit a fresh seven-week low as analysts said weak growth and
inflation may encourage the U.S. central bank to adopt a
cautious tone after a widely expected rate hike at its meeting
Germany's 10-year yield and most other euro zone equivalents
dropped on Wednesday, tracking U.S. Treasury yields that fell
sharply after below-forecast inflation and retail sales data
reduced expectations that the Federal Reserve would raise
interest rates in the second half of the year.
Markets have fully priced the prospect of the Fed raising
its benchmark rate to a target range of 1.00 to 1.25 percent,
but investors are waiting for any signals on the future path of
rates or details on plans to shrink its massive balance sheet.
Following a lacklustre first quarter for economic growth and
a retreat in headline inflation to 1.5 percent from 1.8 percent
earlier in 2017, there is doubt over whether policymakers can
stick to their anticipated pace of tightening of three interest
rate rises this year and next.
There are also growing doubts on the size and scope of
fiscal stimulus the Trump administration may inject into the
U.S. economy with campaign promises on tax reform, financial
regulation rollbacks and infrastructure spending either still on
the drawing board or facing hurdles in Congress.
"There is a very large probability of the U.S. ...
ratcheting up the fed funds target range," DZ Bank's Hendrik
"It should therefore be more intriguing to see ... whether
it is still planning on implementing one further tightening step
in the present year ... Doubts on this score have surfaced of
Few economists polled by Reuters expect major changes in the
Fed's quarterly projections for growth, unemployment and
inflation which it will also release on Wednesday.
Investors will also be looking for a clearer steer on the
timing and details of its previously announced plan to reduce
this year its $4.2 trillion portfolio of Treasury debt and
mortgage-backed securities, most of which were purchased in the
wake of the financial crisis to help bolster the economy.
German 10-year yields fell 4 basis points to 0.23 percent on
Wednesday, its lowest level for over seven weeks, while French
and Spanish equivalents hit multi-month lows.
The yield on 10-year U.S. Treasuries was down as much as 10
basis points to 2.10 percent, the lowest level since November
10, the day after the U.S. election.
The gap between the two benchmarks edged away from a
one-month wide point of 197 basis points hit in the wake of a
European Central Bank meeting last week in which policymakers
pledged to maintain ultra-easy policy as inflation remained
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 Alison Williams)