May 6 (Reuters) - Euro zone government bond yields

dropped on Monday after U.S. economic data moved the needle of

market bets towards a higher chance of two Federal Reserve rate

cuts in 2024.

Meanwhile, the spread between Italian and German 10-year

bond yields hit a 1-1/2-month low after Fitch confirmed its

rating on the Italian debt.

German's 10-year bond yield, the benchmark for

the euro zone, fell 1.5 basis points (bps) to 2.49%.

Italy's 10-year yield dropped 6.5 bps to 3.76%,

and the gap between Italian and German 10-year yields

- a gauge of the risk premium investors ask to

hold bonds of the euro area's most indebted countries - was at

130 bps after hitting 122.60 bps, its lowest level since March

20.

The spread between U.S. 10-year Treasury and German Bund

yields - a gauge of the expected policy path

divergence between the European Central Bank and the Fed -

tightened to 200 bps.

Money markets price in around 75 bps of ECB rate cuts in

2024 and 47 bps for the Fed, which implies

one 25-bp cut and a 90% chance of an additional move in 2024.

.

Germany's 2-year bond yield, more sensitive to

ECB rate expectations, was down 4 bps at 2.89%.