Germany's 10 year yield hits fresh nine-month high, Fed in focus

LONDON, Dec 10 (Reuters) - Germany's 10-year borrowing costs hit fresh multi-month highs on Wednesday as traders price out any chance of further European Central Bank rate cuts, while looking ahead to an important Federal Reserve meeting later in the day.

Germany's 10 year yield rose just over 4 basis points to 2.89%, a level last hit in March in the aftermath of Germany's dramatic move to substantially increase borrowing and government spending.

The euro zone benchmark has been largely rangebound in recent months but took a jolt from Monday remarks by influential ECB board member Isabel Schabel who said the next move in euro interest rates is more likely to be up and warned that leaving rates unchanged for too long could bring a passive easing of monetary policy.

Other members of the ECB's governing council including Bank of France head Francois Villeroy de Galhau said on Wednesday they expect the ECB to keep rates at their current level.

Markets now see the chance of any more ECB easing this cycle as close to zero, having previously seen a small chance of a cut.

Traders have also been paring back bets on further easing by other global central banks, but the most important, the Federal Reserve, is something of an outlier.

Markets are pricing a 25 basis point Fed rate cut later on Wednesday, and see two further such moves as likely across next year.

And while it would come as a massive surprise to markets if the Fed does not cut at Wednesday's meeting, that future outlook is more in doubt, and traders will rush to digest policymakers' economic and rate forecasts.

Back in Europe, while French borrowing costs rose along with the German benchmark, they have been rising slightly less, and the gap between French and German 10 year yields was 71 basis points, around its lowest since August.

Helping the mood, French lawmakers narrowly approved the 2026 social security budget on Tuesday, handing Prime Minister Sebastien Lecornu a crucial victory but at enormous political and financial cost that could still threaten his fragile government.

French 10 year yields rose 4 bps to 3.60% also around their highest since March.

Italy's 10 year yield was also 4 bps higher at 3.59%.

(Reporting by Alun John; Editing by Alexandra Hudson)