UPDATE 1-German bond yields hit 10-day high, markets poised for Powell

German 10-year government bond yields rose on Wednesday, boosted by French industrial production data, as markets waited to see whether Fed Chairman Jay Powell's testimony to Congress met their dovish expectations.

Investors sold German Bunds aggressively after data showed that French industrial output rose more than expected. That pushed Germany's 10-year bund yield up seven basis points to -0.279%, its biggest one-day move since June 2018. Other 10-year yields in the euro zone were also as much as seven basis points higher.,.

Analysts attributed the move partly to the French data. French industrial output rose 2.1% in May, its biggest monthly increase since November 2016.

"There were good numbers in France this morning, so there's some return to risk appetite," said Jean-Christophe Machado, rates strategist at Natixis. "But the reaction is a bit extreme ...Bunds are expensive ... maybe there's some profit taking ahead of the Fed."

In a sign that investors are showing frustration with the super low yields on offer, a German 10-year Bund sale failed to drum up huge demand. Germany's debt management office sold 3.155 billion euros of 0.00% 10-year Bunds, holding on to 845 million euros.

Markets on Friday scaled back expectations of deep rate cuts by the Fed after better-than-expected U.S. jobs data. Nevertheless, rate cuts remain factored into bond prices this week, and any hints from Powell on future monetary policy is keenly awaited.

Markets are now pricing in a 25-basis-point cut at the Federal Open Market Committee's next session on July 30-31. But the potential for disappointment is high, said Christian Lenk, rates strategist at DZ Bank.

"It will be pretty hard for Powell to meet all the expectations that are in the market," he said. "If you look at the fundamentals, the situation in the U.S. is not that bad that would justify a long series of rate cuts.

In a Q&A session on Twitter on Tuesday, the European Central Bank's chief economist, Philip Lane, reiterated that the ECB has the tools it needs to keep inflation on track towards its goal of just under 2 percent.

Risk appetite may also grow after U.S. and Chinese trade officials held a "constructive" phone conversation on Tuesday, according to White House economic adviser Larry Kudlow, marking a new round of talks after the world's two largest economies agreed to a truce in a year-long trade war.

Italy on Tuesday sold a 50-year bond with more than 80% of demand coming from foreign investors, led by Germany, the head of its debt management office told Reuters.