(Updates in early afternoon trading in Europe)

LONDON, April 15 (Reuters) - Euro zone bond yields inched higher on Tuesday after falling earlier in the session as investors struggled to gauge the outlook for tariffs, after U.S. President Donald Trump suggested he might grant further sectoral carve-outs.

The U.S. removed smartphones and other electronics from its tariffs on China over the weekend, helping stocks rally on Monday and investors move back into bonds - such as U.S. Treasuries, British gilts and non-German euro zone debt - that had been hit by market nerves last week.

Speaking on Monday at the White House, Trump said he was considering a modification to the 25% tariffs imposed on foreign auto and auto parts imports from Mexico, Canada and other places.

Germany's 10-year bond yield, the benchmark for the euro zone bloc, slipped in early trading but was last 1 basis point (bps) higher at 2.537%. Yields move inversely to prices.

German bond yields have fallen to around their lowest since early March as investors turned to them as a safe-haven as they sold U.S. assets, including normally bulletproof U.S. Treasuries, amid high levels of uncertainty about tariffs.

German yields have reversed all of the dramatic rise in early March after Germany's chancellor-in-waiting Friedrich Merz announced an historic overhaul of the country's debt rules to ramp up spending.

"Everything considered, bunds seem keen to move back into the range occupied before the Merz sell-off," said Christoph Rieger, head of rates and credit research at Commerzbank, referring to German government bonds.

Rieger cited falling market inflation expectations, Trump's tariffs and a strengthening euro - which can reduce the price of imports - as reasons the European Central Bank now has more scope to cut interest rates, helping government bonds.

Worries about tariffs are weighing on German investors in April, data showed on Tuesday, with the closely watched ZEW gauge of morale plunging the most since Russia invaded Ukraine in 2022.

Italy's 10-year yield was last 3 bps higher at 3.717% after dipping earlier in the session, and the gap between Italian and German yields stood at 118 bps.

Italian bond yields fell 13 bps on Monday after ratings agency S&P upgraded the country's long-term credit rating late on Friday.

Germany's two-year bond yield, which is sensitive to European Central Bank rate expectations, was little changed at 1.784%.

Markets on Tuesday priced in around 80 bps of further ECB rate cuts this year from the current 2.5% level, up from around 65 bps before Trump announced his sweeping tariff plans on April 2.

Traders think the ECB is almost certain to cut rates by 25 bps when it meets on Thursday, according to money market prices .

(Reporting by Harry Robertson; Editing by Kirsten Donovan and Susan Fenton)