Euro zone bond yields set for second weekly decline

LONDON, Aug 8 (Reuters) - Euro zone bond yields headed for a second weekly decline on Friday, sticking to a seasonally tight trading range, as investors mulled the diverging interest rate outlooks for the European Central Bank and U.S. Federal Reserve.

Traders expect the ECB to leave euro zone rates at 2% until well into 2026, while shifts in U.S. data have prompted a surge in bets on at least two Fed rate cuts by the end of this year.

"As both data and supply calendars are completely depleted today, we expect a modest intra-day range today with yields tentatively drifting higher," Commerzbank analysts said.

German 10-year yields rose 1 basis point to 2.643%, but were set for a 3.4-bp fall this week, the second weekly decline in a row. Yields have stuck largely to a 2.6-2.7% range in the past few trading days.

Meanwhile, U.S. President Donald Trump, in his quest to reshape Fed leadership to conform more closely with his own views that rates need to fall sharply, on Thursday nominated Council of Economic Advisers Chairman Stephen Miran to fill a newly vacant seat on the central bank board.

Two-year U.S. Treasury yields have fallen by 21 bps since the start of August alone, compared with a 1-bp dip in two-year Schatz yields, which on Friday were 1 bp higher on the day at 1.93%. The spread between the two is around 181 bps, just above last week's four-month low around 178 bps.

The Bank of England on Thursday cut UK rates by a quarter point, as expected, but policymakers are so divided on the outlook for inflation and growth that the decision was subject to a second vote for the first time in the central bank's history. (Reporting by Amanda Cooper. Editing by Mark Potter)