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

Tuesday as investors weighed the longer-term outlook for

borrowing, with their focus on French political risk and German

budget and fiscal policy.

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

zone, was last up by around 4.5 basis points to 2.989%, having

earlier reached its highest level since June 19.

That move marked its seventh straight session of gains, after it

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

as investor attention moved to any potential shifts in the

borrowing landscape.

Yields had previously been pulling back following the interim

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

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

bank interest rates.

Fabio Panetta, the governor of the Bank of Italy and a member of

the European Central Bank Governing Council, on Tuesday said the

outlook for the euro zone economy remains fragile.

Isabel Schnabel, an ECB board member, said on Monday the euro

zone's economy was not back to its pre-Iran war state despite

the drop in oil prices, as core inflation remained strong and

price pressures continued.

Money markets are pricing in one more ECB rate increase this

year.

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

to interest rate expectations, was last up 4.8 bps to 2.5879%.

FRENCH POLITICS IN FOCUS

A French appeals court on Tuesday upheld Marine Le Pen's

conviction for misusing EU funds but shortened her ban on

running for public office, in theory preserving a path for the

far-right leader to run in the 2027 presidential election.

However, the court also ruled that Le Pen must wear an

electronic ankle tag for a year, making a presidential campaign

politically and logistically difficult.

It is now up to Le Pen to say if she will run to become modern

France's first far-right president. She is due to give a

prime-time television interview at 8 p.m. local time (1800 GMT),

in which she may make an announcement on her political future.

The verdict should, however, have only a limited impact on

markets, said Francesco Pesole, a foreign exchange strategist at

ING.

"We suspect OATs (French Treasury bonds) and the euro can be

seriously unnerved only by a surge in support for left-wing

candidates like Jean-Luc Melenchon at this stage," he said.

French 10-year bond yields were last up 4.8 bps to

3.7816%.

Elsewhere, the German cabinet on Monday approved the first draft

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

billion ($634.2 billion), with total borrowing amounting to

€203.6 billion, as Germany boosts investment and defence

spending to shield its sluggish economy from war-related energy

shocks and years of underinvestment.