LONDON, Sept 23 (Reuters) - Euro zone government bond

yields fell on Monday, with those on safe-haven German debt

falling the most after soft business activity data from France

and Germany supported expectations of more European Central Bank

rate cuts this year.

Germany's 10 year yield, the euro zone benchmark was down 6

basis points at 2.162% and the rate sensitive

two-year yield was down nearly 9 bps at 2.165%.

They fell after data showed France's services sector

contracted sharply in September, following a strong August

driven by the Olympic Games, according to a survey of business

executives.

Bond prices, which move inversely to yields, held gains

after subsequent German data showing business activity in the

euro zone's largest economy contracted in September at its

sharpest pace in seven months.

French debt was less moved by the data, suggesting German

bonds were benefiting from safe-haven inflows. France's 10-year

yield was down 2 bps at 2.95%.

That caused the gap between German and French 10-year yields

to widen 2 bps to 78.3, its widest since market volatility in

early August.

That spread, a gauge of the higher returns investors demand

for holding French debt over the European benchmark, has been in

focus since it widened sharply in the run up to France's

parliamentary elections earlier in the year.

The difference between the yield on the German 10- and

two-year yields was also in focus on Monday, as the 10-year

yield was on the cusp of rising above the shorter-dated yield

for the first time since November 2022.

This would see the German yield curve disinvert, echoing a

similar move in the United States in recent weeks.

Italy's 10-year yield was down 4 bps at 3.53%.

(Reporting by Alun John; Editing by Emelia Sithole-Matarise)