LONDON, July 7 (Reuters) - Euro zone bond yields nudged

higher on Tuesday as investors weighed the longer-term outlook

for borrowing, with potential French political risk and German

budget and fiscal policy in focus.

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

zone, was last up by around 3 basis points to 2.9737%, having

earlier reached its highest since June 19.

That marked its seventh straight session of gains, after

advancing last week on rising U.S. and Japanese bond yields and

by investor attention moving to any potential shifts in the

borrowing landscape.

Yields had previously been pulling back following the

interim U.S.-Iran deal, which sent oil prices lower and eased

worries about the war's impact on inflation, growth, and central

bank interest rates.

However, European Central Bank board member Isabel Schnabel said

on Monday the euro zone's economy was not back to its state

before the Iran war despite the drop in oil prices, as core

inflation remained strong and price pressures continued.

Her comments left the door open for a second interest rate

hike from the ECB as money markets are pricing in one more rate

increase from the central bank this year.

Germany's 2-year yield, which is more sensitive to

interest rate expectations, was last up 2.9 bps to 2.5707%.

Traders were also focused on political developments in Europe

this week, with the German cabinet on Monday approving the first

draft of the 2027 budget. It allocates total spending of €555.4

billion ($634.16 billion), with total borrowing amounting to

€203.6 billion, as Germany moves to ramp up investment and

defence spending to shield its sluggish economy from war-related

energy shocks and years of underinvestment.

Elsewhere in Europe, a Paris court will rule on Tuesday on

French far-right leader Marine Le Pen's appeal against an

election ban for misusing European funds. The ruling will decide

whether Le Pen can run for president in 2027, with the looming

election renewing concerns about French political risk.