(Updates after morning trading)

By Alun John

LONDON, Nov 25 (Reuters) - Euro zone bond yields nudged

lower on Tuesday as U.S. Treasury yields held their recent

declines on the back of growing expectations the Federal Reserve

will deliver a December rate cut.

Germany's 10-year Bund yield was down one basis point at

2.68%, broadly in the middle of its range for much of this year.

With markets seeing the European Central Bank as firmly on

hold, European rates have been fairly muted in recent weeks.

Spillovers from moves in stocks or U.S. and Japanese government

bonds have not been sufficient to drive significant shifts

either.

U.S. yields have been dropping in recent days as bets on a

Federal Reserve rate cut rise, but were steadier on Tuesday with

the 10-year Treasury yield at 4.03%.

The decline in U.S. yields helped the gap between German and

U.S. 10 year yields to drop to 133.3 bps on Monday, its

narrowest closing level in two months. It ticked slightly wider

again on Tuesday.

Analysts at UBS said the fact investors cannot be too

confident about the direction of central bank policy on either

side of the Atlantic is adding a note of caution to markets.

"Divergence in central bank views and delayed data make

high-conviction trades harder," they wrote in a note to clients.

They observed that while ECB President Christine Lagarde has

repeatedly said its policy rate is "in a good place", she warned

last week about the euro zone's growth vulnerabilities .

Meanwhile, in the U.S., though the last few Fed speakers

have indicated they are open to a rate cut in December's

meeting, others last week were less sure.

"You might see the least groupthink you've seen from the

FOMC (rate setting committee) in a long time," Fed Governor

Christopher Waller said last week.

The slow trickling in of U.S. economic data delayed by the

government shutdown further adds to the uncertainty.

U.S. retail sales and PPI for September are due later

Tuesday.

The back and forth around a possible peace deal to end the

war in Ukraine has also had little effect on euro zone bonds

even as it moves stocks, particularly defence names.

Analysts at ING said if a deal were to lead to lower gas

prices, and so lower inflation, that could cause euro zone

yields to fall.

Elsewhere in Europe on Tuesday French and Italian 10-year

yields were largely moving in line with Germany's.

France's 10-year yield was down 2 bps at 3.42% and Italy's

was down a similar amount at 3.43%.