(Adds comments; updates prices)

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, the benchmark for

the euro zone bloc, fell 1.2 basis points to 2.74%.

Italy's 10-year yield was 2.4 bps lower at

3.59%, and the gap between Italian and German bunds

widened 1 bp to 85 bps.

Germany's two-year bond yield, 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.

Money markets currently see a 65% chance of a 25-bp rate cut

at the Fed's next session in September. Earlier this week, they

saw a 85% chance for such a cut.

The drop in Fed cut expectations pushed Treasury yields

higher on Thursday.