LONDON, May 14 (Reuters) - Germany's 10-year bond yield touched a near two-week high on Tuesday after data showed U.S. factory prices rose by more than forecast last month, denting hopes of a summer rate cut from the Federal Reserve.

The U.S. producer price index (PPI) rose 0.5% month-over-month in April, the Bureau of Labor Statistics said. Economists polled by Reuters had expected a 0.3% increase.

However, reaction was contained ahead of consumer price data on Wednesday which analysts said could provide greater clues on the path of U.S. interest rates.

Germany's 10-year bond yield, the benchmark for the euro area rose to 2.553%, its highest since May 2. It was last at 2.52%, up 1.5 basis points (bps). Yields move inversely to prices.

Germany's rate-sensitive two-year yield was up 0.5 bps at 2.96%.

"This report underscores Fed concerns that the path of disinflation has stalled, requiring a higher for longer policy stance to combat seemingly entrenched inflation," said Quincy Krosby, chief global strategist for LPL Financial.

Money market traders slightly pared bets that the Fed will deliver a first rate cut in September, pricing in around a 60% chance of a September move, versus a 64% chance before the report.

"We think that most important data this week will be tomorrow's U.S. CPI report," said Camille de Courcel, head of G10 rates strategy for Europe at BNP Paribas.

"We think that will be the driver for global rates. And in particular, we think that even an in-line (with expectations) print...would likely see yields go to the downside."

Data on Wednesday is expected to show U.S. consumer price index inflation slowed to 3.4% year-on-year in April, from 3.5% in March.

The size of the U.S. economy and the importance of the dollar mean global markets - including in euro zone bonds - shift along with expectations of Federal Reserve policy.

Central bankers in Europe have cautioned that they do not want to stray too far from the Fed's rate path given that it could hurt their currencies.

Italy's 10-year yield was 2.5 bps higher at 3.88%, and the gap between Italian and German bond yields widened 1 bp to 135 bps.

Yields have risen this year as U.S. economic data has come in stronger than expected, causing investors to rein in their bets on central bank rate cuts.

Survey data released on Tuesday by the German ZEW institute showed business morale in the country hit a two-year high in May, a further sign that the euro zone economy is recovering from a period of stagnation.

In the United States, President Joe Biden unveiled a sweeping set of tariff increases on Chinese products on Tuesday as he tries to appeal to voters in U.S. industrial heartlands.

The spread between U.S. 10-year Treasury and German bond yields narrowed 3 bps to 194 bps. (Reporting by Harry Robertson, additional reporting by Samuel Indyk; Editing by Andrew Heavens, Ed Osmond and Christina Fincher)