(Updates moves at 1110 GMT)

By Linda Pasquini

LONDON, Sept 26 (Reuters) - The spread between French

and German 10-year yields hit its widest in seven weeks on

Thursday, as rising expectations that the ECB could cut rates in

October boosted bond prices overall, but French bonds lagged

amid domestic political jitters.

Germany's 10-year yield fell 5 basis points to 2.14% and

France's was down 3 bps at 2.94%.

The spread between them, showing the greater

returns investors demand for the risk of holding French debt

over the euro zone benchmark, hit 82 bps, its widest since Aug.

5, up from around 70 bps two weeks ago, before easing a touch.

Investors are monitoring French yields, which on Tuesday

rose above Spain's for the first time since 2008 amid concern

over the administration's ability to tackle the budget deficit.

On Wednesday, France's new finance and budget ministers said

they would focus a budget squeeze on spending cuts first and

then tax increases, as the new government faces calls to come up

with realistic plans to rein in a spiralling fiscal shortfall.

Driving the fall in euro zone yields were expectations that

the European Central Bank will cut rates at its October meeting.

Market pricing now reflects a slightly more than 50% chance

of a cut next month, up sharply from last week, as soft European

business activity survey, a downbeat German business morale

report and a fall in U.S. consumer confidence all suggest the

European economy is weakening and requires monetary easing.

Bond yields fell on Thursday after Reuters reported that

policy doves at the ECB are preparing to fight for an October

cut, a move likely to meet resistance from their more

conservative peers, seven sources told Reuters.

However, previous ECB messaging still suggests the doves

have a tough task.

"I think the bar is quite high for the ECB to cut interest

rates. The message from (ECB President) Lagarde in September was

'we would rather wait until December'," said Yvan Mamalet,

senior economist and strategist at Kleinwort Hambros.

"So you will need to see a very negative surprise on

inflation or further negative surprises on growth for the ECB to

cut in October. December is definite though."

French inflation data is due Friday, and other national and

bloc wide data follows next week.

Italy's 10 year yield was down 8 bps at 3.46%.

and the rate sensitive German two year yield was down 5 bps at

2.09%.