LONDON, Sept 6 (Reuters) - Euro zone government bond yields hovered near a two-week high on Wednesday on the back of a European Central Bank (ECB) survey showing consumer expectations for inflation edged up, adding to the case for another interest rate hike.

The ECB's Consumer Expectations Survey showed inflation expectations three years ahead rising to 2.4% in July from 2.3% in June, above the ECB's 2% target.

Money markets are still pricing in an around 33% chance of a 25 basis points (bps) rate hike at the Sept. 14 meeting.

But ECB governing council member Klaas Knot told Bloomberg on Wednesday that investors betting against an interest rate increase next week are possibly underestimating the likelihood of it happening.

Germany's 10-year government bond yield, the benchmark for the euro zone, was last up 1.1 bps at 2.618% after rising to 2.648% its highest level since Aug. 23.

"Higher inflation expectations from the ECB survey and extension of oil production cuts from Saudi and Russia added to the bearish pressure," said Mohit Kumar, interest rate strategist at Jefferies.

Oil prices jumped more than 1% on Tuesday amid jitters arising from supply cuts from Saudi Arabia and Russia.

Analysts flagged a busy primary market this week as pushing up yields.

Althea Spinozzi, senior fixed-income strategist at Saxo, said the U.S. 10-year Treasury yields this week were also driven higher by nearly $37 billion in corporate bond issues.

Investors have been avoiding increasing their bets on a hike from the ECB as data pointed to a deteriorating economy in the euro zone.

Data showed that industrial orders in Germany, the bloc's richest economy, fell more than expected in July.

Germany's IfW economic institute said that the economic outlook for the year had clouded over, and it is now predicting that the economy will shrink by 0.5% instead of 0.3% previously.

Italy's 10-year government bond yield, the benchmark for the euro area periphery, flattened on the day at 4.339% after rising to a two-week high.

The spread between Italian and German 10-year yields - a gauge of investor sentiment towards the euro zone's more indebted countries - was at 171 bps after reaching its widest level in more than two weeks.

(Reporting by Joice Alves Editing by Peter Graff and Sharon Singleton)