Euro area bond yields edge higher after ECB flags caution

LONDON, Dec 13 (Reuters) - Euro zone bond yields rose on Friday, a day after the European Central Bank (ECB) cut interest rates but also said it remained vigilant about inflation.

It was the third day in a row that yields edged higher. Germany's 10-year bond yield, the benchmark for the euro zone, rose about 2 basis points (bps) to 2.21% on Friday, around its highest in more than two weeks.

Yields move inversely to prices.

Euro zone markets swung on Thursday after the ECB cut rates by 25 bps to 3% and opened the door to further reductions, though analysts were split on the signals it gave on how fast it would lower borrowing costs.

ECB President Christine Lagarde cited "uncertainty... in abundance" when commenting on the rate cut decision but she also warned that domestic inflation remained uncomfortably high, and that victory over excessive price growth was not yet complete.

Markets now turn their focus to the U.S., where bets are that the Federal Reserve will cut interest rates next week but then take a patient approach towards further reductions.

Italy's 10-year yield was higher by 1.7 bps? at 3.33%, and the gap between Italian and German bond yields narrowed 1 bp to 111.7 bps.

Germany's two-year bond yield, which is more sensitive to ECB rate expectations, was up close to 2 bps at 2.03%.

The yield gap between French government bonds and safe-haven German Bunds narrowed by 1 bp to 76 bps. President Emmanuel Macron is expected name a new prime minister on Friday. (Reporting by Greta Rosen Fondahn Editing by Gareth Jones)