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.

French 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 the

wealthy and on big companies.

"The main points were well telegraphed through the media

over the past weeks and should hence not take markets by

surprise," said Michel Nies, economist at Citi.

"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

government bond yields stood at 77.5 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 election earlier in the year.

The government had previously said the budget bill would

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 scale

of the proposed consolidation and the corresponding reliance on

tax increases left them less confident about the government's

ability to meet its 2025 deficit target.

Fitch's review of France's rating due later on Friday

will be a focus of investors' attention, though markets see a

bigger risk of a downgrade when Moody's updates its stance on

Oct. 25.

All three major ratings agencies, which also include S&P

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

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

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

gained 3 bps at 2.28%, after rising to 2.299%, its

highest since early September.

In the absence of major domestic economic catalysts,

signs of a strong U.S. economy and the prospect of U.S. rates

remaining higher for longer have recently been driving euro zone

yields, pushing them to multi-week highs.

U.S. Treasury

yields ticked lower early on Friday after a report showed

producer prices were flat in September.

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 ECB rate expectations, was up 3 bps at 2.26%.

Elsewhere, Italy's 10-year government bond yield

firmed 3 bps to 3.57%. The country's borrowing costs

were slightly up at an

auction

.