LONDON, Feb 16 (Reuters) - Germany's 10-year bund yield edged up on Friday, leaving it a fraction higher on the week and around its highest since early December, as traders digest the week's mixed bag of global data and what it means for central bank policy.

The yield on the euro zone benchmark rose 2 basis points (bps) to 2.38%, not far from Tuesday's two and a half month high of 2.415%, hit after higher than expected U.S. inflation data sent bond yields higher on both sides of the Atlantic.

Germany's 10 year yield was little changed on a weekly basis however, as other data including Thursday's softer than expected U.S. retail sales figures, and Wednesday's lower than expected British inflation data complicated the global picture somewhat.

The main data event for Friday is U.S. producer price, or factory gate, inflation figures, which Deutsche Bank strategist Jim Reid said was "the most important U.S. PPI print for a while ... (as it will) provide an update on some key services components of PCE inflation".

PCE inflation is the U.S. Federal Reserve's preferred inflation measure and it has diverged somewhat from consumer price inflation in recent months.

Government bonds around the world are highly sensitive to expected changes in central bank policy at present. Those expectations are close to moving in unison as markets think most major central banks would prefer to keep their policy roughly aligned with that of the Fed, and because of the global nature of the post COVID inflation surge and its recent decline.

Market pricing reflects roughly a 50% chance of a 25 bp rate cut by the European Central Bank at its meeting in April, and is fully pricing in 50 bps of cuts across the ECB's April, June and July meetings.

A March cut, now seen as highly unlikely, had been all but priced in late 2023, and that change led to the sell-off in government bonds this year.

Investors were also digesting the latest remarks from policy makers. ECB member and Bank of France head Francois Villeroy de Galhau told Belgian paper L'Echo that the ECB should not hold off for too long on an initial interest rate cut.

Villeroy added the ECB had "three degrees of freedom" regarding its future monetary policy, namely the timing of the first rate cut, the pace of further monetary policy easing afterwards and then the level to which rates could fall.

In contrast, ECB policymaker Isabel Schnabel said the ECB must be cautious about adjusting its policy stance prematurely.

Italy's 10-year yield was around 2 bps higher at 3.87%, around 11 bps off its two month high also hit Tuesday after the U.S. inflation print.

It is heading for a small weekly fall, of nearly 10 bps, helping the closely-watched spread between German and Italian 10 year yields to narrow to 147.3 bps on Friday, close to its narrowest in two years. (Reporting by Alun John Editing by Mark Potter)