By Khushi Singh and Shashwat Chauhan

(Reuters) -European stocks closed slightly higher on Monday and government bond yields eased, amidst hints of upcoming interest rate cuts by the European Central Bank (ECB), though trading activity was light as some key global markets were shut.

The pan-European STOXX 600 index closed 0.3% higher, in touching distance of an all-time high hit earlier this month.

Key policymakers at the ECB said the bank has room to cut interest rates as inflation slows but must take its time in easing policy, even if the direction of travel is already clear.

“It remains to be seen how the data will turn out. However, the environment suggests that inflationary pressure will ease in both the eurozone and the U.S.,” Rainer Singer, analyst at Erste Group wrote in a note.

“The ECB is very likely to cut interest rates in June. The Fed is not yet ready.”

Government bond yields across the continent eased, with the yield on the benchmark 10-year bund last at 2.547%. [GVD/EUR]

Spotlight this week would be on a reading of May consumer prices for the euro zone due on Friday, while individual inflation readings from Germany, Spain and France will also be released throughout the week.

The ECB looks set to start easing interest rates in its upcoming meeting next week, with bets showing an over 90% probability of a rate cut, according to LSEG data. [0#ECBWATCH]

U.S. inflation data, also due on Friday, could help traders assess the timing and numbers of possible rate cuts by the Federal Reserve this year.

Trading was light in absence of U.S. and UK participants as markets there were shut for a public holiday.

Most of the major STOXX 600 sectors closed higher, with utilities leading the charge with a 1.1% jump, while automobiles added about 1%.

On the data front, a survey showed German business morale stagnated in May, falling short of a forecast for improvement. Germany’s benchmark stock index closed 0.4% higher.

Amongst individual stocks, Alstom gained 5.6% after the French train maker set terms of a planned 1 billion-euro ($1.08 billion) rights issue as part of broader actions to repair its finances.

Shares of salmon farmer P/F Bakkafrost shed 2.5% slip after the ISA virus was confirmed in two pens at farming site A-19 Vágur.

(Reporting by Khushi Singh and Shashwat Chauhan in Bengaluru; Editing by Nivedita Bhattacharjee, Sohini Goswami, William Maclean)

---