Euro zone bond yields were struggling to find direction on Tuesday as investors sat tight ahead of the European Central Bank's policy announcement and key U.S. inflation data later in the week.

Germany's 10-year yield, the benchmark for the euro zone, was last up less than 1 basis point (bp) on the day at 2.126%. It hit 2.03% last week, its lowest since Oct. 1.

Bond yields move inversely with prices.

Yields have fallen across most of the major euro zone economies in recent weeks as the bloc's growth outlook weakened, yet ECB rate-setters have dented expectations for jumbo easing at Thursday's meeting.

"A number of heavyweights on the governing council have done what they can to push back on market expectations for a 50 basis point cut in December," said SEB rates strategist Jussi Hiljanen, citing comments from ECB policymaker Isabel Schnabel and chief economist Philip Lane.

"It seems the ECB wants to see more progress in the disinflation process before even considering a 50 basis point cut," Hiljanen added.

Markets are fully pricing a 25 basis rate cut at Thursday's policy announcement. Chances of a 50 basis-point move on Thursday are at about 5%, down from over 50% on Nov. 22 after survey data showed a deterioration in business activity in the bloc.

Germany's policy-sensitive two-year yield was down 1.5 bps on Tuesday at 1.987%, just above last week's two-year low of 1.891%.

French bonds, which have underperformed Germany's in 2024, were also steady as President Emmanuel Macron continues to search for a new government after former Prime Minister Michel Barnier was ousted in a confidence vote last week.

France's 10-year yield was down 1 bp at 2.858%.

The yield gap between France's and Germany's 10-year yields fell to 72.5 bps, having risen as wide as 90 bps on Nov. 27, when it was clear Barnier's budget was unlikely to pass through parliament and the government would likely topple.

Analysts were also awaiting U.S. consumer price inflation figures on Wednesday, which could provide clues on whether the Federal Reserve opts to cut rates next week or not.

"While a Fed rate cut seems very likely next week, it could be a close call if inflation remains sticky again," said Commerzbank head of rates and credit research Christoph Rieger.

Economists polled by Reuters expect CPI to have increased 0.3% in November, taking the annual rate to 2.7% from 2.6% previously.

Italy's 10-year yield, the benchmark for the euro zone periphery, was little changed at 3.196%.

(Reporting by Samuel Indyk, Editing by Louise Heavens and Ed Osmond)