(Updates with European midsession trade)

By Harry Robertson

LONDON, Nov 27 (Reuters) - The premium investors demand

to hold French debt rose to its highest level since 2012 on

Wednesday in a sign of worries over the country's finances,

while benchmark German yields fell along with those in the

United States.

The spread between French and German 10-year bond yields

rose to 90 basis points (bps), the highest since

the euro zone crisis 12 years ago, before easing to around 86

bps.

French far-right leader Marine Le Pen has been threatening

to bring down France's coalition government in a no-confidence

vote over proposed tax rises and spending cuts in the 2025

budget.

Prime Minister Michel Barnier told French broadcaster TF1 on

Tuesday there could be "serious turbulence on the financial

markets" if the government collapses.

France's 10-year bond yield was flat at 3.021%

by 11:45 GMT, while Germany's was around 4 bps lower at 2.162%

. Yields rise as prices fall and vice versa.

"Investors remain concerned about political developments in

France, especially due to the government's difficulties in

approving next year's budget," said analysts at Italian bank

UniCredit in a note on Wednesday.

Outside of France, euro zone bond yields fell along with

those in the United States.

European yields were likely being pulled down by "very

disappointing consumer confidence data from Germany and France,

on top of the recent weak growth indicators," said Jussi

Hiljanen, head of European rates strategy at SEB.

Data on Wednesday showed German consumer sentiment tumbled

more than expected going into December, while a French measure

also dropped.

A key gauge of the market's long-term euro zone inflation

expectations fell below 2% for the first time since July 2022 on

Tuesday, a sign investors think faltering growth means inflation

could undershoot the ECB's target in the coming years.

The 10-year U.S. Treasury yield, which sets the

tone for borrowing costs around the world, was down 3 bps at

4.271%.

"We rallied in the morning following a bit of rally in

Treasuries post our close and also concerns over France," said

Mohit Kumar, chief financial economist for Europe at Jefferies.

"But then Schnabel talked about gradual cuts and we have come

back."

Influential ECB board member Isabel Schnabel told Bloomberg

that the central bank should cut interest rates only gradually.

Short-dated German yields ticked up from two-year lows after

Schnabel's comments and were last down 2 bps at 2.019%

.

Italy's 10-year bond yield was down 3 bps at

3.432%.

Inflation data on Friday is expected to show euro zone price

growth picked up to 2.3% year-on-year in November, from 2% in

October and 1.7% in September.

Before that, data on U.S. personal consumption expenditure,

the Federal Reserve's preferred price gauge, is due at 1500 GMT.