Euro zone yields rise on Brexit ruling, BOE meeting

* Impending U.S. rate hike overshadowed by tight election

* Court verdict on Brexit helps risk sentiment

* BoE (Shenzhen: 200725.SZ - news) scraps plan to cut rates, gilt yields rise (Updates prices, reaction to BOE meeting)

By Abhinav Ramnarayan

LONDON, Nov 3 (Reuters) - Euro zone government bond yields rose on Thursday, driven by expectations of a U.S. rate rise, a court ruling on Brexit and a change to neutral in the Bank of England's stance on future interest rates.

The Federal Reserve kept interest rates unchanged on Wednesday in its last policy decision before the U.S. presidential election on Nov. 8, but signalled it could hike in December as the economy gathers momentum and inflation picks up.

In recent weeks, government bond yields have risen sharply on any news that suggests that central banks are tightening policy or even scaling back their aggressive easing.

News (Other OTC: NWSAL - news) that the Bank of England had ditched its bias towards a rate cut after a meeting on Thursday triggered a jump in British gilt yields, that spilled over into U.S. and euro zone bond markets.

The yield on Germany's 10-year government bond , the region's benchmark, was up 4 basis points at 0.17 percent, forcing the bond market to give up some of the previous day's safe-haven driven price gains triggered by U.S. election uncertainty.

Upward pressure on European bond yields also came from a court ruling that the British government needs parliamentary approval to trigger the process of exiting the European Union, potentially delaying Prime Minister Theresa May's Brexit plans.

The verdict improved risk sentiment and led investors to shed safe assets such as euro zone government bonds, while the pound rallied.

"The market became more risk-on after the verdict because it increases the chances of a soft Brexit, as the parliament will push the government to keep access to the single market to the largest extent possible, which is positive for the UK economy," said Mizuho rates strategist Antoine Bouvet.

"But I think there's an understanding now that the key date is December 8 because the government is now appealing the verdict."

The cautious nature of the move upwards in yields makes sense given that the U.S. Federal Reserve itself seems to be hedging its bets ahead of the elections, analysts said.

"Last time there was a rate hike, it was explicitly flagged in the meeting before, but this time the Fed has kept it a bit more vague," said ING rates strategist Martin van Vliet.

"I think the Fed doesn't want to put itself in a corner in case the Republican candidate wins and there is a market meltdown. They have given themselves the small possibility to delay the hike until next year," he said.

Spain sold 3.8 billion euros ($4.2 billion) of debt at a quadruple bond auction on Thursday with yields on the benchmark 10-year bond rising from a previous auction, the higher end of the 3-4 billion euro target.

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Aditional reporting by Dhara Ranasinghe; Editing by Catherine Evans)