Oct 2 (Reuters) - Euro area government bond yields rose

on Wednesday after long-dated yields posted their biggest daily

fall since mid-June the day before on concerns about economic

growth.

Fears of a wider regional conflict in the Middle East added

downside pressure as investors rushed into the safety of

government bonds, but its impact remained contained for now.

Data showed on Tuesday manufacturing activity across the

euro zone declined at its fastest pace this year in September.

Investors await U.S. jobs data due later in the session as

the Federal Reserve has shifted its focus to employment

indicators after inflationary pressures eased.

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

the euro zone bloc, rose 4.5 basis point (bps) to 2.09%. It hit

2.011% on Tuesday, its lowest level since January, before ending

the session with a 9 bps drop.

"Markets are taking a breather after yesterday's bond rally.

However, geopolitics and the central bank's policy paths

remained in focus," said Massimiliano Maxia, fixed income

specialist at Allianz Global Investors.

Euro zone growth could be weaker in the near term than the

ECB expects but the recovery should pick up pace later on, ECB

Vice President Luis de Guindos said on Wednesday.

Markets priced in a 90% chance of a 25 bps rate cut by the

European Central Bank in October, from 80%

late on Friday.

The ECB has a "clear-cut" case for cutting interest rates at

its next meeting, ECB policymaker Martins Kazaks told Reuters.

Analysts flagged that Kazaks also warned markets against

running ahead of themselves" as it is "too early to say we're

done with inflation" and "rates must stay somewhat restrictive."

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

sensitive to ECB rate expectations and already priced in a quick

easing path, was up 1.5 bps at 2.04%. It hit 1.987% on Tuesday,

its lowest level since December 2022, before ending down 4 bps.

The gap between French and German 10-year yields

- a gauge of risk premium that investors demand to

hold France's government bonds - was last at 79 bps, from around

70 bps in mid-September. It reached its widest since 2012 beyond

85 bps during France's parliamentary elections.

Prime Minister Michel Barnier announced steep public

spending cuts and targeted tax hikes for France's biggest

companies and wealthiest individuals on Tuesday to narrow a

gaping budget deficit.

"The OAT-led tightening in euro area government bond spreads

yesterday was likely partly driven by shorts taking profit ahead

of Prime Minister Barnier's presentation of his government's

policy agenda, but it mostly reversed after the event," said

Andrea Appeddu, rate strategist at Citi.

"Yesterday's policy announcements add to the downside

pressure on French credit ratings," he added, flagging the

increase in 2025 deficit target to 5% from 4.1% earlier and

"doubts around the government's longevity."

Italy's 10-year yield rose 5 bps to 3.43% while

the gap between Italian and German yields widened

to 133.5 bps.