European debt yields choppy, US yields rise as markets weigh rate outlook

Nov 15 (Reuters) - Euro zone borrowing costs were little changed on Friday, while U.S. Treasury yields marched higher after hawkish remarks from Federal Reserve Chair Jerome Powell bolstered bets on higher-for-longer U.S. interest rates.

The euro zone debt market has been struggling for direction since Donald Trump's U.S. election victory earlier this month. European yields initially tracked U.S. rates higher, but the prospect of damage to an already fragile euro zone economy from Trump's proposed trade tariffs made the case for more rate cuts from the European Central Bank, thereby bringing yields lower.

German 10-year bond yield, the benchmark for the euro zone bloc, rose 0.9 basis points to 2.35%, on pace to end a second straight week somewhat flat. Bond yields move inversely to prices.

Interest rate changes should remain the ECB's primary policy instrument and bond purchases, along with forward guidance, need to be used more sparingly, ECB board member Isabel Schnabel said on Thursday.

ECB's 25 bps rate cut last month was seen as insurance against unexpectedly low inflation, but policymakers appear divided on the risk of excessively low price growth, minutes of their Oct 16-17 meeting showed on Thursday.

Money markets see a near-25% chance that the ECB would opt for a larger 50-bps rate cut next month versus 42% more than two weeks ago. Traders are near certain of at least a quarter-point reduction.

Germany's two-year bond yield, which is more sensitive to European Central Bank rate expectations, was little changed at 2.11%.

A selloff in U.S. Treasuries resumed on Friday, a day after Federal Reserve Chair Jerome Powell indicated the U.S. central bank does not need to rush to cut rates amid a solid job market and sticky inflation.

That prompted investors to rein in bets on interest rate cuts next month, supporting U.S. yields and the dollar.

Italy's 10-year yield was higher by 2 basis point? at 3.57%, and the gap between Italian and German bunds widened 2.6 basis points to 121.5 bps. (Reporting by Medha Singh in Bengaluru; Editing by Kim Coghill)