Sept 27 (Reuters) - Euro zone government bond yields

dropped on Friday after inflation data from France and Spain,

with investors awaiting figures from the U.S., which could

affect expectations for monetary policy paths on both sides of

the Atlantic.

French consumer prices rose less than anticipated in

September, aided by a decline in energy costs. Spain's European

Union-harmonised 12-month inflation fell to 1.7%, lower than the

1.9% expected by analysts polled by Reuters.

The German and euro area inflation figures are due next

week. Markets will closely watch the U.S. Personal Consumption

Expenditure (PCE) figures, the Federal Reserve's preferred

inflation measure, later in the session.

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

the euro zone bloc, fell 3.5 basis points (bps) to 2.14%.

Markets priced in more than a 70% chance of a 25 bps rate

cut by the European Central Bank in October

from around 20% early this week and 60% before data.

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

to ECB rate expectations, was down 3 bps at 2.08%. It hit 2.079%

on Thursday, its lowest level since December 2022.

The gap between French and German 10-year yields

- a gauge of risk premium that investors demand to

hold France's government bonds - was last at 79 bps, from around

70 bps two weeks ago. It reached its widest since 2012 beyond 85

bps during France's parliamentary elections.

Budget Minister Laurent Saint-Martin warned the deficit is

at risk of topping 6% of economic output, far above the 5.1% the

previous government had estimated in the spring.

Italy's 10-year yield fell 4 bps to 3.44% and

the gap between Italian and German yields

tightened to 128 bps.