(Updates at 1035 GMT)

By Samuel Indyk

LONDON, June 19 (Reuters) - Euro zone government bond

yields were slightly higher on Wednesday, while the risk premium

that investors demand to hold French bonds was steady as

attention remained on political uncertainty in France.

The gap between France and Germany's 10-year yields

stood at 73 basis points (bps), up less than 1 bp

from the previous session, but below the 80 bps hit last week.

The spread has widened from under 50 bps since French

President Emmanuel Macron called a snap election this month in

response to a strong showing for far-right parties in the

European Parliament election.

With Marine Le Pen's National Rally leading in the polls but

looking set to fall short of an outright majority, the risk of a

hung parliament or far-right government has investors worried

about France's debt path and fiscal situation.

"I don't think it's realistic to expect any meaningful

tightening of French spreads in the run-up to the election,"

said Jussi Hiljanen, head of European rates strategy at SEB.

"The spread might be a bit more stable here but still have

some underlying widening bias."

The European Union said on Wednesday it wanted to start

disciplinary budget steps against France, Italy, Belgium and

other smaller EU countries over their excessive budget deficits,

requiring them to reduce their shortfalls.

Danske Bank's fixed income research director, Piet Haines

Christiansen, did not expect this to be a surprise to the

market, but said it could get "significant" market attention,

given fragile sentiment in France.

France's 10-year bond yield was up 2 bps to

3.1391%. It had spiked as high as 3.338% last week. Bond yields

move inversely with prices.

Germany's 10-year bond yield, the euro zone's

benchmark, stood at 2.396%, up 1 bp on the day but down almost

30 bps from a high of 2.678% reached last week.

"German bonds have received some support from the election

turbulence and from the macro picture," SEB's Hiljanen said.

"We have had softer U.S. data which overshadowed a bit more

hawkish Federal Reserve."

On Tuesday, U.S. retail sales grew less than expected,

reinforcing expectations that the Fed will begin lowering

borrowing costs this year.

The scale of the U.S. economy means global markets,

including euro area bonds, and rate cut expectations for the

European Central Bank, often move due to shifts in Fed

expectations.

A significant number of economists polled by Reuters see the

ECB cutting its deposit rate twice more this year, in September

and December, following June's rate cut.

Italy's 10-year yield, the benchmark for the

euro zone's more indebted countries, was up 2.5 bps at 3.914%,

pushing the spread between Italian and German 10-year yields to

150 bps.

(Reporting by Samuel Indyk; Editing by Andrew Heavens and

Shinjini Ganguli)