LONDON, Sept 26 (Reuters) - Euro zone bond yields edged

lower on Thursday after news that China is considering more

economic support fuelled optimism over a broad-based easing in

financial conditions.

Meanwhile, investors now attached a roughly 60% chance to an

interest rate cut next month by the European Central Bank

, having almost ruled out such a move last

week, as weak European business activity survey, a downbeat

German business morale report and a fall in U.S. consumer

confidence added momentum to bets in the previous session.

"Risk sentiment is strengthening this morning due to rumours

of an additional $142-billion injection from Chinese authorities

into the banking system," Danske Bank analysts said in a client

note.

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

the euro zone bloc, fell 1.6 basis points to 2.17% after rising

as much as 2.192% on Wednesday. Yields move inversely to prices.

Italy's 10-year yield declined 3.9 bps to 3.5%

and the gap between Italian and German yields

stood at 132.4 bps.

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

to ECB rate expectations, was down 2 bps at 2.114%.

"Speeches by top ECB officials are the wild card in the EGB

space today, considering mounting rate-cut assumptions in the

euro zone in recent days. Aside from this, we might just see a

repetition of yesterday's lacklustre activity in EGBs, with

directional trading only starting to revive with tomorrow's

inflation releases out of France and Spain," analysts at

UniCredit wrote in a note to clients.

More inflation data at the beginning of next week will

provide a clearer idea as to whether the ECB will cut rates on

Oct. 17, they said.

The ECB has cut rates by 25 basis points twice this year.

Investors have been keeping a close eye on French yields

which on Tuesday rose above Spain's for the first time since

2008 due to concern about the new government's ability to tackle

the budget deficit.

The gap between French and German 10-year yields

was last at 78.3 bps, from around 70 bps two weeks

ago. It reached its widest since 2012 beyond 85 bps during

France's parliamentary elections.