* "Transatlantic spread" close to widest since April
* U.S. rate hike expected while ECB set to be cautious
* Analysts expect redemption pressure on euro zone yields
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices)
LONDON, Dec 11 (Reuters) - The gap between benchmark German and U.S. 10-year bond yields was close to its widest since April on Monday as the fiscal and policy paths of two of the world's most important economies diverge.
Monetary policy-setters for both countries are due to meet this week and though both economies are on the mend, the paths are expected to deviate as U.S. President Donald Trump pushes a tax overhaul that could put the world's largest economy at risk of overheating.
As a result, investors are starting to price in multiple rate hikes from the U.S. Federal Reserve in 2018, after an almost-certain hike this week.
While pressure from rate hike expectations is most pronounced at the short end of the yield curve -- the U.S. Treasury curve is close to its flattest in a decade -- longer-dated yields are also being impacted, particularly after the risk of a U.S. government shutdown last weekend was averted.
"Political risks are capping U.S. Treasury yields at the long end but ... three rate hikes (are still) expected next year," said DZ Bank strategist Rene Albrecht.
"The contrary is true for the euro zone. The tendency is for lower rates and I expect government bonds to consolidate at these levels going into the year end."
The European Central Bank in October extended its asset purchases until September 2018 and left the door open for keeping the taps flowing beyond that date.
Expectations are for the ECB to keep rates at the current low level until well into 2019, possibly until Mario Draghi ends his term at its helm.
The gap between U.S. and German 10-year yields reached 208.5 basis points on Monday, just off the 209 bps eight-month high hit earlier in December.
Most high-grade euro zone bond yields were flat to a shade lower on Monday, with Tradeweb prices showing 10-year Bund yields, the benchmark for the region, dropping a basis point to 0.29 percent.
Portuguese 10-year government bond yields hit a fresh 2-1/2 year low of 1.78 percent.
Analysts expect further downward pressure on euro zone yields in the coming weeks, as government bonds become harder to find with recent supply scarce and the ECB continuing to buy debt in large quantities.
"The bond scarcity trade that has been playing out in recent weeks, and caused a slow grind lower of euro zone yields, is set to continue in our view," Mizuho analysts said in a note.
"A (German two-year) Schatz redemption this week, and the early January Bund redemption coming into view are both factors reinforcing our conviction."
The Fed is due to meet Tuesday and Wednesday, with a press conference scheduled, while the ECB and the Bank of England meet on Thursday.
U.S. inflation numbers are due on Wednesday.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.bi z / c m s / ? p a g e I d = l i v e m a r k e t s
(Reporting by Abhinav Ramnarayan; Editing by Catherine Evans)