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By Harry Robertson and Joice Alves
LONDON, June 28 (Reuters) - Euro zone government bond yields ticked lower on Wednesday after Italian inflation data came in cooler than expected and separate figures showed lending in the bloc was slowing.
Investors were also focusing on comments from the heads of the world's biggest central banks at the European Central Bank's annual forum in Sintra.
They reaffirmed that they see further policy tightening as needed to tame stubbornly high inflation but still believe they can achieve that without triggering outright recessions.
Italian inflation, when adjusted to compare across the European Union, slowed to 6.7% year-on-year in June from 8% in May, preliminary figures showed on Wednesday. Economists expected a 6.8% reading.
Core inflation - which strips out food and energy costs - also slowed. The Italian data comes ahead of euro zone-wide figures on Friday.
Italy's 10-year yield was last down 1 basis point (bps) to 3.99%. Germany's 10-year yield, the benchmark for the bloc, was down 3 bps at 2.33%. Yields move inversely to prices.
"The drop in Italy’s headline and core inflation in June is encouraging," said Franziska Palmas, senior Europe economist at consultancy Capital Economics.
Yet she added: "That said, the European Central Bank is likely to remain in hawkish mood. Indeed officials... are clearly concerned about the tight labour market causing stickiness in services inflation."
Just before the inflation figures, data showed euro zone bank lending slowed in May in the wake of the ECB's rapid campaign of interest rate hikes.
SUPER STAR MEETING
Euro zone yields were little changed after an all-star cast of central bankers - including ECB President Christine Lagarde, Fed Chair Jerome Powell, Bank of England Governor Andrew Bailey and Bank of Japan Governor Kazuo Ueda - discussed inflation in Sintra.
Traders who bet on the path of interest rates expect ECB borrowing costs to peak at just below 4% in December, from 3.5% currently.
For some analysts and investors, interest rates at 4% are likely to cause growth to slow sharply, if not cause an outright recession.
The German yield curve - the gap between the 10-year and 2-year bond yields - fell to its deepest inversion since 1992 on Tuesday at -89 bps, in a sign that traders think the ECB will likely have to cut rates to deal with slowing growth in the not too distant future. It last stood at -85 bps on Wednesday.
(Reporting by Harry Robertson and Joice Alves; editing by John Stonestreet, Alex Richardson, William Maclean)