Germany's 10-year yield at one-month low

LONDON, Jan 7 (Reuters) - Germany's 10-year bond yield dropped to its lowest in a month on Wednesday a day after cooler inflation in key European economies suggested the European Central ?Bank need not rush to raise rates.

There is a raft ?of U.S. economic data to come later in ?the day -- services activity data as well ?as private ?payrolls and job openings -- that could affect Federal Reserve expectations, move U.S. ?Treasuries and spill over ?into euro zone government bonds.

But until then it was Tuesday's data that was shaping ?the picture, particularly numbers showing ?inflation ?slowed more than expected in some of the euro zone's biggest economies last month.

Germany's 10-year yield was ?down 3 basis points at 2.81% its lowest since December 8.

Investors expect the ECB to keep their policy rate steady throughout this year but Tuesday's data means the discussion is now about the ?small ?chance that they might cut rates again, as opposed to late last year when traders ?were considering a small chance of a rate hike this year.

Lower oil prices on Wednesday were also in the mix and reinforced that narrative around cooling inflation.

Other euro zone bonds were largely moving in line with Germany's, ?the euro zone benchmark. France's 10-year yield was down 3 bps at 3.53% while Italy's was also down 3 bps at ?3.46%. (Reporting by Alun John; Editing by Toby Chopra)