LONDON, June 26 (Reuters) - Germany's 10-year bond yield

fell on Thursday after rising the day before, but remained

within its recent narrow range as markets weighed worries about

rising fiscal spending against the outlook for monetary policy.

Germany's 10-year government bond yield, the

euro zone's benchmark, was last down 2 basis points at 2.54%,

after rising three bps the day before. The 30-year yield

was down 1.5 bps at 3.05%.

Investor focus has been on the longer-end of the curve, with

expectations that euro area countries, led by Germany, will ramp

up borrowing to increase spending on defence.

On Wednesday, NATO leaders agreed to boost spending on

defence to 5% of GDP, but some European nations, already running

large deficits and seeing debt balloon, may struggle to meet the

target.

Germany, which has greater scope to increase spending,

published its draft budget for 2025 earlier this week, which

included record investments to boost growth.

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

to changes in monetary policy expectations, was down 1.5 bps at

1.831%.

The European Central Bank lowered its deposit rate earlier

this month but signalled it was done with rate cuts for now

after lowering borrowing costs eight times in just over a year.

The central bank's vice president Luis de Guindos and

influential rate setter Isabel Schnabel are both scheduled to

deliver speeches later on Thursday.

Italy's 10-year bond yield was down 2.5 bps at

3.484%, pushing the yield gap between Italian and German 10-year

bonds tighter by 1 bp to 93 bps.