(Updates at 1020 GMT)

By Alun John

LONDON, July 11 (Reuters) - Euro zone bond yields

steadied on Thursday after a fall the previous day, and the gap

between German and French 10-year yields narrowed further as

investors unwound the political risk premium built ahead of

French parliamentary elections.

A combination of minor data points, including a dovish

shift from the Reserve Bank of New Zealand and an unexpected

fall in Norwegian inflation, gave investors some clarity around

slowing inflation and central bank policy easing, and drove the

fall in yields on Wednesday, Rabobank analysts said in a note.

But U.S. inflation data due at 1230 GMT - the week's key

scheduled event for markets - will weigh far more heavily, and

that meant traders on Thursday were nervous about placing large

bets ahead of the release.

"That CPI release is in particular focus, because there's

been mounting anticipation that the Federal Reserve might still

deliver two rate cuts this year, with September and December

seen as the most likely dates," Jim Reid, global head of macro

research at Deutsche Bank, said in a morning note.

"If there is positive news on inflation and we get another

soft print, then that momentum for a rate cut is likely to build

further."

Germany's 10-year bond yield, the benchmark for

the euro zone bloc, was little changed at 2.54% after a

2-basis-point fall Wednesday.

France's 10-year yield was also steady at 3.19% after a near

7-bp move the previous day, and the gap between the two - a now

closely watched gauge of French risk - briefly touched 62.4

basis points in early trading, its lowest since June 13.

That gap reached its widest since 2012 in late June at 85

bps as investors feared France's parliamentary election would

lead to a majority for high-spending parties, instead of the

legislative gridlock that actually resulted.

Italy's 10-year yield was little changed at

3.86%, after a 9-bps fall on Wednesday that sent it to a

one-month low.

Germany's two-year bond yield, which is more

sensitive to European Central Bank rate expectations, was little

changed at 2.9%.