LONDON, July 2 (Reuters) - British government bond

prices fell by the most since October 2022 and the pound tumbled

on Wednesday, after finance minister Rachel Reeves appeared

visibly distressed in parliament, a day after the government

sharply scaled back plans to cut benefits.

Reeves has repeatedly emphasised her commitment to fiscal

rules, limiting the amount Britain will borrow, and, analysts

said, the market moves reflected fears that she would be

replaced, creating even more uncertainty.

The yield on the 10-year government bond, or gilt, rose as

much 22 basis points on the day at one point, to 4.681%

, as investors ditched UK debt.

That would be the largest one-day jump in the British

benchmark yield since October 2022, in the aftermath of then

Prime Minister Liz Truss' chaotic fiscal announcement that cost

her premiership.

The selloff hit the entire gilt curve. Thirty-year yields

rose nearly 22 basis points, and 2-year yields rose 11 bps

"Gilt yields were moving up but started to spike during

(Prime Ministers Questions) as Reeves looked utterly shaken,"

said Neil Wilson, UK investor strategist at Saxobank.

Prime Minister Keir Starmer's press secretary later said

Reeves has his full support, and she was upset because of "a

personal matter".

Investors are watching Reeves' position after the British

government's U-turns on welfare reforms mean the plans will no

longer save taxpayers any money and have shredded the margin

Britain relies on to meet its fiscal rules, analysts said on

Wednesday.

"The market is pricing in the possibility of a replacement

chancellor with a more left-leaning agenda, which is spooking

the bond market and waking up the bond vigilantes from their

slumber," said Kathleen Brooks, research director at XTB

Sterling dropped by more than 1% against the dollar, set for

its largest one-day decline since mid-June and also weakened

sharply against the euro, after Reeves appeared to wipe tears

away in parliament.

The pound was last down 1% on the dollar at $1.361

. The euro was up 0.6% at 86.4 pence. That would be the

euro's largest one-day rise against the pound in two months.

Britain's domestically focused mid-cap index was

down 1.65% on the day, sharply underperforming European stocks.

"It's about Rachel Reeves finding herself in a very

difficult situation following a series of U-turns, which means

that the savings that had been anticipated ... (are) not going

to be had," said Dani Hewson, head of financial analysis at AJ

Bell

"What's gone on in parliament today has absolutely unsettled

(investors) because what is happening is the market is becoming

increasingly concerned with Reeves' position."