German short-dated yields fell to a 10-week low on Friday as traders increased their bets on future European Central Bank rate cuts, pricing in a 50% chance of a fourth easing move amid concerns about the bloc's economy.

U.S. President Donald Trump floated a 25% "reciprocal" tariff on European cars and other goods on Wednesday, sparking renewed worries about a possible trade war.

Inflation eased in four sizeable German states, according to preliminary data on Friday, suggesting Germany's national inflation rate could also slow down this month, in line with analysts' forecasts.

French inflation dropped below 1% for the first time in four years in February.

Germany’s 2-year government bond yield, more sensitive to European Central Bank policy rates, hit 1.999%, its lowest level since December 20 and was last down 2 bps at 2.01%.

Money markets priced in a European Central Bank depo rate at around 1.88% in December from the current 2.75%, implying three 25 bps rate cuts and an about 50% chance of a fourth move. They priced a depo rate at 1.97% last week.

"The specific mentioning of the auto sector (in possible U.S. tariffs against Europe) could also mean a repeat of the 2018 tariff threat against that sector only," said Citi.

"This makes a difference for the size of the impact -- car exports are only 10% of total European Union (EU) exports to the U.S. -- and the distribution of losses against EU member states," it added.

Euro area borrowing costs fell after the German election on Sunday as winner Friedrich Merz ruled out a quick reform to state borrowing limits.

Analysts said an increase in Germany's fiscal spending could boost the euro area's economy.

Germany's 10-year government bond yield, the benchmark for the broader euro zone, was down 2 bps at 2.39%.

Markets await U.S. data later in the session, which could provide more clues about the Federal Reserve's easing path. Markets price in 62 bps of rate cuts by year-end.

Euro zone consumers lowered their near-term inflation expectations last month but continued to see economic contraction ahead, an ECB survey showed on Friday.

The ECB will meet next week, with investors widely expecting a 25 bps rate cut.

"The critical communication to watch next week is whether the ECB drops the 'restrictive' label from its official stance," said Carsten Brzeski, global head of macro at ING, recalling that hawkish ECB officials, including Isabel Schnabel, have started to push back against additional rate cuts.

"If it does, a pause in the rate cut cycle could become an option. If not, the current pace of rate cuts will continue."

Most analysts believe that the structural weakness of the economy, looming tariffs and low inflationary pressure will force the ECB to cut rates to at least 2%, even if not all the ECB members would like that.

Italy's 10-year yield was down 2 bps at 3.47%. The yield gap between Italian and German government bonds was 107 bps.

(Reporting by Stefano Rebaudo Editing by Frances Kerry)