Euro zone government bond yields fell on Wednesday with investors on hold before U.S. economic data later in the session and the European Central Bank policy meeting on Thursday which could provide clues about the rate outlook.

Kamala Harris put rival Donald Trump on the defensive in a U.S. presidential debate, fuelling expectations for a decline in interest rates. Investors expect higher fiscal spending that would boost interest rates in the event of a Trump victory.

Germany's 10-year yield, the benchmark for the euro zone bloc, was down 2.5 basis points (bps) at 2.12%, a fresh one-month low.

Italy's 10-year yield was lower by 2.5 bps at 3.50%, and the gap between Italian and German Bunds - a gauge of the risk premium investors demand to hold Italian government bonds - stood at 137 bps.

Money markets priced in around 60 bps of ECB rate cuts in 2024, implying two ECB moves and a 40% chance of a third cut.

Germany's two-year bond yield, which is more sensitive to changes in ECB rate expectations, dropped 2.5 bps to 2.17%.

(Reporting by Stefano Rebaudo, editing by Andrew Heavens)