LONDON, Nov 12 (Reuters) - Euro zone government bond

yields edged lower on Wednesday, as traders tried to process the

implications of a potential end to the U.S. government shutdown

and remarks from ECB policymaker Isabel Schnabel.

Benchmark German 10-year Bund yields were last

at 2.65%, down less than one basis point, still shy of the

one-month peak of 2.699% hit earlier in the week.

Moves in European government bonds have been fairly limited

in the past few days, partly because there are few domestic

drivers with the European Central Bank firmly on hold.

Investors are assessing competing narratives in relation to

the U.S. government shutdown coming to an end.

"On the one hand, risk sentiment could improve further as

fears about the damage to the economy subside further with

federal employees about to rush back to work," said rates

analysts at Commerzbank in a note.

"On the other hand, eagerly awaited economic data will only

gradually be released, with risks probably biased towards data

indicating weaker labour market conditions."

Members of the House of Representatives will vote later on

Wednesday on a deal that would restore funding to government

agencies and end the 42-day-old shutdown.

YIELDS IN EUROPE AND US DOWN SLIGHTLY

Yields in both Europe and the U.S. ended Tuesday slightly

lower after a U.S. private sector employment survey pointed to

weakness in the labour market.

Commerzbank said that "as the positive risk sentiment in

anticipation of an end to the shutdown should prevail today"

traders should be cautious with regard to longer-dated German

government bonds.

Traders were also watching remarks from ECB Executive Board

member Isabel Schnabel. She said she sees the European economy

continuing to recover, and that this would prevent

disinflationary pressures from building.

On the supply front, the German government will auction some

2.5 billion euros ($2.92 billion) in 2046 and 2056 debt.

Thirty-year German bond yields also nudged

lower, down around one bp at 3.24%.

The French parliament will vote on a social security

financing bill later on Wednesday. French bond yields

, which have hit two-year highs this year due to

investor concern about the country's long-term finances, fell 3

bps to 3.38%.

($1 = 0.8575 euros)