Euro zone bond yields edge lower ahead of Fed's Powell speech

By Joice Alves

LONDON, Aug 22 (Reuters) - Euro zone bond yields edged lower on Friday as traders waited for a speech by Federal Reserve Chair Jerome Powell at the Jackson Hole symposium for clues on the U.S. central bank's monetary path.

The German 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, fell 1.2 basis points to 2.74%.

Italy's 10-year yield IT10YT=RR was 2.4 bps lower at 3.59%, and the gap between Italian and German bunds DE10IT10=RR widened 1 bp to 85 bps.

Germany's two-year bond yield DE2YT=RR, which is more sensitive to European Central Bank rate expectations, held steady at 1.97%.

Powell's speech, which is scheduled for 10 a.m. EDT (1400 GMT), is likely to be pivotal to traders' assessments of the chances of a September rate cut by the U.S. central bank.

"Fed chairs have used this occasion (Jackson Hole) before to communicate important shifts in guidance," said Christoph Rieger, head of rates and credit research at Commerzbank.

"While we don't expect a major shift, in line with earlier guidance ... it would be consistent to open the door for a 25bp rate cut in September," he added.

Because the size and importance of the U.S. economy, changes in expectations over the Fed's moves on interest rates often influence other bond markets.

Markets have largely priced in a September rate cut, meaning any signal that the Fed will instead opt to hold rates could trigger a reaction across bond markets.

The drop in Fed cut expectations pushed Treasury yields higher on Thursday.