LONDON, May 2 (Reuters) - Euro zone bond yields edged

lower on Thursday after the U.S. Federal Reserve held interest

rates steady and signalled it might have to leave rates elevated

for longer than previously expected.

Fed Chair Jerome Powell told reporters that inflation was

too high and progress in bringing it down was uncertain. He set

the stage for a potentially extended hold of the benchmark

policy rate in the 5.25%-5.50% range that has been in place

since July.

German 10-year bond yield, the benchmark for the

euro zone, fell 2.7 basis points (bps) to 2.55%. The two-year

bond yield, which is more sensitive to European

Central Bank rate expectations, was down 2.9 bps at 2.99%.

Italy's 10-year yield was lower by 4 basis

points at 3.87%, and the gap between Italian and German bunds

widened 2 basis points to 131 bps.

The spread between U.S. 10-year Treasuries and German bunds

widened 0.3 basis points to 205 bps.