LONDON, Oct 22 (Reuters) - Euro zone government bond

yields edged up on Wednesday, shrugging off a sharp drop in gold

and growing uncertainty on the geopolitical front, while

French bonds stuck to their recent range ahead of a ratings

review this week.

A planned summit between U.S. President Donald Trump and

Russian President Vladimir Putin was put on hold the previous

day after Moscow rejected a proposed immediate ceasefire in

Ukraine. In the Middle East, U.S. officials increased pressure

on Hamas to disarm to solidify a fragile Gaza ceasefire.

German 10-year Bund yields were up 1.5 basis

points (bps) at 2.56%, while yields on the two-year Schatz

rose 0.5 bps to 1.92%.

A huge selloff in gold overnight, in which prices dropped by

the most in a single day since 2020, briefly injected some

volatility into broader markets, but did little to knock other

safe-haven assets like bonds.

French bonds held around 3.35%, roughly where they have

traded for the last week, since the newly formed government of

Prime Minister Sebastien Lecornu appeared to have reached a

compromise with leftist lawmakers over his budget plan, thereby

averting yet another shake-up.

On Friday, Moody's reviews France's credit rating. S&P

Global last week delivered a surprise downgrade, warning that

political instability is hampering the French government's

ability to get its finances in check. Fitch last month did the

same.

The European Central Bank convenes next week and is not

expected to make any changes to monetary policy. ING global head

of macro Carsten Brzeski said that since the ECB's September

meeting, data releases had been "sparse and inconclusive" and

there was an absence of external factors that might prompt

policymakers to cut rates, or signal a cut was imminent.

"The most often heard comments simply reiterate the now

familiar sentiment that the ECB is in a 'good place,' with

little urgency to adjust rates," Brzeski said.

He added that while October seemed to be a done deal in

terms of no change, traders were underestimating chances of a

cut at the December meeting. Markets reflect virtually no chance

of any change to borrowing costs in December and little

possibility of any move until next March.

The gap between German Bunds and 10-year UK gilts

hit its narrowest since March on Wednesday at 184.70 bps, as

yields on British government bonds dropped sharply

after data earlier showed inflation ran at a slower rate than

expected last month.

The Bank of England is expected to cut rates at least once

this year and could deliver another cut in the first half of

2026, based on the derivatives market.

"Traders are betting that the softer inflation print could

drive the BOE to cut rates by year-end, as this inflation print

gives the BOE more leeway to loosen monetary policy earlier than

anticipated," XTB research director Kathleen Brooks said.