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.

U.S. inflation data due later in the day is the week's key

scheduled event for global government bond markets - indeed all

asset classes - and traders were nervous about placing large

bets in the buildup to that.

The data will reinforce or challenge current market

expectations that the Federal Reserve is more likely than not to

cut rates in September.

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 shot to its highest 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%, and the gap between Italian and German bunds

widened 0.2 basis points to 131 bps.

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

sensitive to European Central Bank rate expectations, was little

changed at 2.9%.