(Updates at 0947 GMT)

By Medha Singh

Oct 11 (Reuters) - French bond yields edged higher on

Friday as investors assessed the government's 2025 budget to

tackle a spiralling fiscal deficit, while German bond yields hit

a fresh one-month high.

Prime Minister Michel Barnier's new government, under

pressure from financial markets and France's European Union

partners to take action, outlined plans for 60 billion euros

($66 billion) worth of spending cuts and tax hikes on wealthy

and big companies.

"The main points were well telegraphed through the media

over the past weeks and should hence not take markets by

surprise," said Citi Economist Michel Nies.

"Much of the adjustment burden falls on revenue

increases, which will not be easy to achieve in the magnitude

that's pencilled in."

France's 10-year bond yields, which move

inversely to prices, were up 3 basis points (bps) at 3.058%,

hitting a five-week high.

The spread between France's and Germany's 10-year yields

stood at 76.8 bps, largely unchanged from a day

earlier.

That spread, a gauge of the higher returns investors

demand for holding French debt over the European benchmark, has

been in focus since it widened sharply in the run up to France's

parliamentary elections earlier in the year.

The government had previously said the budget bill will

reduce the public deficit to 5% of gross domestic product (GDP)

next year from 6.1% this year as a first step towards bringing

the shortfall into line with an EU limit of 3% in 2029.

Goldman Sachs economists wrote in a note that the

magnitude of the proposed consolidation and the corresponding

reliance on tax increases leave them less confident in the

ability of the government to meet its 2025 deficit target.

Fitch's review of France's rating due later in the day

will be in focus, though markets see a bigger risk of a

downgrade when Moody's updates it stance on Oct. 25.

All three of the major ratings agencies, including S&P

Global, currently have a stable outlook in place, but this might

be increasingly difficult to justify, Citi's Nies said.

Meanwhile, the euro zone benchmark German 10-year bond yield

gained 4 bp at 2.289%, rising to highest since early

September on Thursday as a strong U.S. inflation report.

In the absence of major domestic economic catalysts,

signs of strong U.S. economy and higher-for-longer U.S. interest

rates outlook have recently been driving euro zone yields,

pushing them to multi-week highs.

The European Central Bank's Oct. 17 meeting is now

expected to take centre stage, with money markets almost fully

pricing in a 25 bps rate cut.

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

sensitive to European Central Bank rate expectations, was up 4

bp at 2.271%.

Elsewhere, Italy's 10-year government bond yield

firmed 4 bps to 3.578%. The country's borrowing

costs were slightly up at an

auction

.