LONDON, July 9 (Reuters) - Euro zone government bond

yields edged up on Tuesday, staying higher after Federal Reserve

Chair Jerome Powell said inflation "remains above" its 2% target

but has been improving.

Speaking to the U.S. Senate Banking Committee, Powell said

"more good data would strengthen" the case for central bank

interest rate cuts.

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

the euro zone bloc, was last up 4 basis points (bps) at around

2.56%, compared with 2.53% just before Powell started speaking.

U.S. Treasury yields rose, dragging their European

counterparts with them.

"Powell's comments are not too much of a surprise as of now

but his Q&A (question and answer) session could be interesting,"

said Commerzbank rates strategist Rainer Guntermann.

"He is slightly more optimistic on inflation."

Most euro zone bond yields have fallen over the last week as

data have suggested the U.S. economy is slowing, adding to hopes

that the Fed can cut rates this year and bolstering expectations

of further reductions from the European Central Bank.

Money markets price in a roughly 76% chance of a quarter

point cut in September, broadly unchanged from before Powell

started speaking.

The ECB meets next week and is expected to keep policy

steady, having cut rates in June.

In Europe, focus remained on France following Sunday's

second-round parliamentary election which resulted in a hung

parliament.

Leaders from the left-wing bloc that came first in France's

legislative election and the runner-up centrists have engaged in

a frenzied race to be first to cobble together a viable

government, lawmakers and other sources told Reuters on Tuesday.

France's 10-year bond yield was up 8 bps in late

trade at 3.25%. The closely watched gap between French and

German borrowing costs was wider at around 67 bps but down from

the highest since 2012 in late June at 85 bps on fears of a

far-right victory.

"Whereas in the U.S. we see the rate-cutting narrative

picking up momentum, in the euro zone the direction is less

evident," Michiel Tukker, senior European rates strategist at

ING, said.

"The data in the euro zone has simply been more mixed

regarding the direction of the economy, with headline inflation

coming down, services inflation and wage growth remaining

stubborn, and labour markets showing few signs of

deterioration."

Italy's 10-year yield rose 7 bps to 3.96% after

falling for the previous two sessions, and the gap between

Italian and German yields was around 4 bps wider

at 140 bps.

Germany's two-year bond yield, which is more

sensitive to ECB rate expectations, was up 2 bps at around

2.93%.