(Updates at 1440 GMT)

By Stefano Rebaudo and Medha Singh

Oct 18 (Reuters) - Euro zone government bond yields fell

on Friday after money markets raised bets on the European

Central Bank's monetary easing path as focus shifts from

battling inflation to stabilizing economic growth, .

The ECB cut rates on Thursday for the third time this year,

saying inflation in the euro zone was increasingly under control

while the outlook for the bloc's economy was worsening.

Inflation may now turn out lower than anticipated only a few

weeks ago, prompting some rate setters to make the case on

Thursday for dropping a pledge to keep policy tight, an implicit

signal that more rate cuts are coming, sources close to the

ECB's deliberations told Reuters.

"The acknowledgement of the risks being to the downside was

the key point," said Nick Chatters, fixed income manager at

Aegon Asset Management.

"The market is already pricing quite a bullish view for

bonds, which is the reason I don't see value right now."

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

sensitive to ECB rate expectations, dropped 4 basis points (bps)

to 2.103%, its lowest level since Oct. 4.

Money markets priced an ECB deposit facility rate at just

below 2% in June 2025 -- implying a 25 bps

rate cut at every meeting until next summer -- from 2.15% on

Thursday before the ECB meeting.

They also fully priced a 25 bps rate cut in December

and an around 25% chance of a 50 bps move,

from 20% on Thursday.

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

the euro zone bloc, dropped nearly 2 bps to 2.183%.

U.S. 10-year Treasury yields were down 2 bps to

4.075%, after climbing on Thursday as data pointed to an economy

on a solid footing, easing market expectations for Federal

Reserve aggressiveness in cutting rates.

Later in the session, the Scope rating agency will update

its view on France, while Fitch and S&P will review Italy's

ratings after issuing their last comments about six months ago.

"Positive outlook changes to the BBB ratings (on Italy)

cannot be excluded," said Christoph Rieger, head of rates and

credit research at Commerzbank, adding that the economic outlook

is likely unchanged and that the deficit projections have

improved significantly since April.

Italy's 10-year yield was 4 bps lower at 3.356%,

and the gap between Italian and German yields held

steady at 117 bps after hitting its lowest level since June

earlier.

"As a negative outlook reflects downside risks to the rating

over 12-18 months, a downgrade (of France debt) to AA- seems

possible tonight in light of the deterioration in fiscal

performance since then," he argued.

Commerzbank confirmed its tactical longs in 10-year OATs

versus Bunds as France is already trading in the range of

single-A rated peers.

The gap between French and German 10-year yields

- a gauge of the risk premium investors demand to

hold France's government bonds - tightened to 73 bps, narrower

than the levels seen before Prime Minister Michel Barnier

presented the budget for 2025, at around 77 bps.

The spread also hit 71.40 its lowest since Sept. 20.

Most analysts expect the far-right National Rally to support

the minority government of Prime Minister Michel Barnier, at

least in the short term.