LONDON, Aug 7 (Reuters) - Euro zone bond yields are

struggling for direction on Thursday after rising slightly in

the previous session, with investors focusing on the outlook for

monetary policy and supply from France and Spain.

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

benchmark, was up less than 1 basis point at 2.651%, within its

recent tight range.

"In the absence of any major drivers, the market is lacking

direction," Jefferies economist Mohit Kumar said in a note.

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

to changes in interest rate policy, was little changed at

1.9134%.

Market pricing for European Central Bank rate cuts remains

little changed. Investors are only pricing in a 12% chance of a

cut at next month's meeting, with about a 90% chance they cut

rates by March.

In contrast, markets have recently added to bets for rate

cuts from the U.S. Federal Reserve after soft jobs data for

July, while the Bank of England is expected to lower borrowing

costs when it announces policy later on Thursday.

Futures markets are now almost fully pricing in a rate cut

from the Fed next month, with 60 bps of easing priced by the

year-end, implying two quarter-point cuts and a 40% chance of a

third.

Investors will also be watching bond auctions from France

and Spain.

France is scheduled to sell up to 10.5 billion euros

($12.26 billion) of longer-dated bonds, while Spain's treasury

is issuing a total of 4-5 billion euros of three-, 10-, and

20-year bonds.

10-year bond yields in France, Spain

and Italy were all little changed.

($1 = 0.8564 euros)