LONDON, Oct 9 (Reuters) - German government bond yields fell and the spread between them and Italian yields widened on Monday as clashes between Israeli forces and the Palestinian militant group Hamas prompted a modest bid for safe-haven Bunds.

Germany's 10-year Bund yield, the benchmark for the euro area, was down 5.5 basis points (bps) at 2.835%. Bond yields move inversely with prices.

Germany's 2-year yield was down 4 bps to 3.089%.

The Israeli military on Monday said it struck hundreds of Hamas and Islamic Jihad targets in the Gaza Strip overnight in retaliation for one of the bloodiest attacks in its history when Hamas militants killed 700 Israelis and abducted dozens more.

"The coming days are likely to be driven by geopolitical risks rather than fundamentals," said Mohit Kumar, chief economist for Europe at Jefferies.

"From a market's perspective, key would be whether Iran gets drawn into the conflict and what happens to oil prices over the coming weeks."

Oil prices climbed by as much as 5% after the clashes in the Middle East as fears of tightening supply drove Brent crude futures as high as $89/barrel.

Resurgent oil prices will be another concern for major central banks as they attempt to get inflation back under control, but analysts do not expect them to diverge from their current path unless the situation escalates.

"The message will be that they are carefully monitoring the developments," Jefferies' Kumar said.

"Unless oil goes above $100 and stays there for a period of time, we do not think recent developments will alter central bank reaction function."

Meanwhile, Italy's 10-year bond yield, the benchmark for the euro area's periphery, was little changed at 4.922% as investors favoured the relative safety of German debt over Italian.

That pushed the closely-watched yield gap between Italian and German 10-year yields as wide as 209 bps, its widest level since January.

"Italy is not managing to follow up the rally in core euro zone bonds," said Jussi Hiljanen, head of European rates strategy at lender SEB.

"It's been surprising that Italy has been doing so well this year but I think that has primarily been connected to risk appetite and data. Now the stock market is lower, Italian bonds are finding it increasingly difficult."

Hiljanen added that a bigger yield gap could prompt the European Central Bank to continue to reinvest cash from its maturing debt under the pandemic emergency purchase programme (PEPP), even as some policymakers call for an early end to the policy as inflation remains high.

"This kind of turbulence increases the risk that the ECB has to proceed more carefully than some of the governing council members would prefer," Hiljanen said.

Meanwhile, euro area government bond supply is expected to slow this week, with just Italy and Germany scheduled to sell bonds, according to UniCredit analysts, while the EU is due to launch a syndicated transaction in the 20-year area of the curve. (Reporting by Samuel Indyk; Editing by Emelia Sithole-Matarise)