(Updates at 1545 GMT)

By Stefano Rebaudo and Harry Robertson

Nov 25 (Reuters) - Euro zone bond yields fell on Monday

after President-elect Donald Trump picked Scott Bessent as

Treasury secretary and as oil prices slipped on reports of a

possible ceasefire in the war between Israel and Hezbollah.

The choice of Bessent caused U.S. government bonds to rally

and yields to drop, as markets expect the hedge fund manager to

keep a leash on U.S. deficits and deliver a moderate approach on

tariffs. The fall helped pull European bond yields lower,

although shorter-dated yields were little changed.

Concerns about new policies stoking inflation and reducing

the room for the Federal Reserve to cut interest rates had

caused U.S. bond yields to rise in recent weeks.

Germany's 10-year yield, the benchmark for the

euro area, was last down 5 basis points at 2.2%, around the

lowest in a month. Yields move inversely to prices.

"Bessent, a successful macro hedge fund manager, is

associated with a preference to reduce the U.S. budget deficit

to 3% of GDP, which clearly suggests less appetite for deficit

spending," said Jane Foley, head of FX strategy at Rabobank.

Also weighing on bond yields was a fall in oil prices, which

declined as Israel and Lebanon said they were moving closer to a

ceasefire.

Bond yields are sensitive to expectations about future

inflation and central bank rates, which are heavily influenced

by energy prices. Brent crude oil was last down 2.2% at

$73.54 a barrel.

On Friday, the euro area's weak PMI data drove German 2-year

yields and the euro to their lowest levels in around 2 years as

investors positioned for deeper rate cuts from the European

Central Bank.

Germany's 2-year government bond yields - more

sensitive to expectations for the ECB rates - was last down 1 bp

at 2.004%, just above Friday's two-year low, after falling 9.5

bps on Friday.

Markets priced in an ECB deposit facility rate at around

1.84% in July, compared with 1.8% late on

Friday.

They fully discounted a 25 bps rate cut next month and an

around 30% chance of a 50 bps move, compared with over 50% soon

after the PMI data.

Philip Lane, the ECB's chief economist, said there was still

some way to go before euro zone inflation was sustainably back

at 2%, but ECB policy should not remain restrictive for too long

or price growth could fall below target.

German business morale fell more than expected in November,

a survey showed, adding to the gloom around Europe's biggest

economy.

The gap between French and German yields - a

gauge of the premium investors demand to hold France's debt -

widened to 83 bps, a fresh 3-1/2-month high, and was last at 81

bps. It hit 88 bps in early August, its widest level since July

2012.

The French risk premium has risen in recent days as

Rassemblement National leader Marine Le Pen has threatened to

try to bring down the government in a dispute over the budget.