(Updates with early European afternoon trading)

By Harry Robertson

LONDON, Jan 3 (Reuters) - Euro zone bond yields rose on

Friday, pushing them back towards their highest levels in a

month or more, after data showed German unemployment rose less

than expected in December.

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

the euro zone, rose 2 basis points (bps) to 2.387%. It hit a

six-week high of 2.405% a week ago before falling back. Yields

move inversely to prices.

Data on Friday showed the number of unemployed people in

Germany increased by 10,000 in seasonally adjusted terms to 2.87

million. Analysts polled by Reuters had expected that figure to

rise by 15,000.

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

to European Central Bank rate expectations, rose to 2.142%, its

highest since Nov. 21. It was last up 4 bps at 2.13%.

Analysts have cautioned that trading is still thin after the

holidays, meaning prices are more volatile than usual.

"There is clearly a decent chunk of the market that is still

out of the office and this means that we are loathe to read too

much into market moves," Rabobank analysts said in a research

note, referencing Thursday's fall in bond yields.

Italy's 10-year yield rose 2 bps to 3.548% and

the gap between Italian and German yields stood at

116 bps.

The closely watched gap between French and German bond

yields rose to 87 bps on Friday, its highest since Dec. 3.

The spread - a gauge of the premium investors demand to hold

French debt - shot higher in the summer as elections plunged the

country into political turmoil.

It has remained elevated, at around its highest levels since

the euro zone crisis of 2012, while new Prime Minister Francois

Bayrou has attempted to build consensus to pass a budget,

something his predecessor Michel Barnier failed to do.

"Investors ... appear to remain unconvinced whether the new

French Finance Minister will be able to pass a budget with a

deficit of 'slightly above 5%', which is envisioned to be passed

by mid-February," said Hauke Siemssen, rates strategist at

Commerzbank.

The closely watched U.S. ISM manufacturing survey is due

later in the day at 1500 GMT (1600 CET).