*

European stocks fall, driven by banks

*

French bonds hold Wednesday's gains

*

JPMorgan ( JPM ) CEO warns of market risks

(Updates prices throughout, adds Wall Street futures in

paragraph 7)

By Elizabeth Howcroft

PARIS, Oct 9 (Reuters) - The rally in European stocks

paused on Thursday, with the FTSE 100 dragged down by banking

shares, while investors weighed up the risk of a market

correction.

Wall Street hit fresh record highs in the previous session,

as investors bet on gains in technology stocks, despite a U.S.

government shutdown leaving traders without some key economic

data.

The U.S. shutdown and political risk in Japan and France

have made investors nervous this week, creating safe-haven

demand which, along with a weaker dollar, has driven gold above

$4,000 for the first time.

STOXX DOWN 0.2% ON THE DAY

The STOXX 600 was down 0.2% on the day at 1059 GMT

and London's FTSE 100 was also down 0.2%, hit by losses

at HSBC ( HSBC ) and Lloyds Banking Group ( LYG ) but partially

offset by gains in mining and technology stocks.

The MSCI World Equity Index was up just 0.1% on the day

.

U.S. stock futures dipped, pointing to a mixed open for Wall

Street.

"It just feels like the mood is a little bit fragile," said

Fiona Cincotta, senior market analyst at City Index.

"It does feel that we're lacking substance to any move that

we're seeing, because we're not getting that data out of the

U.S."

In a sign of rising caution among investors, JPMorgan Chase ( JPM )

CEO Jamie Dimon said there was a heightened risk of a

significant correction in the U.S. stock market within the next

six months to two years, citing factors including geopolitical

tensions, government spending and remilitarization around the

world.

U.S. President Donald Trump announced late on Wednesday that

Israel and Hamas had reached a ceasefire and hostage deal.

French bonds held on to Wednesday's gains after President

Emmanuel Macron said that he would name a new prime minister by

Friday evening, which raised hopes that the country could avoid

a snap election and agree a budget.

The 10-year French government bond yield was at 3.4962%

, while the benchmark German 10-year yield was 2.679%

.

The dollar index edged up 0.1% to 98.978, but was still down

around 8.9% on the year overall. The euro was in its fourth day

of declines, down 0.1% at $1.1612.

The Japanese yen hit an eight-month low of 153 per dollar

overnight, but was last a touch stronger at 152.75.

An economist advising the policy circle of Japan's likely

new premier Sanae Takaichi told Reuters that the yen's current

weakness benefits the economy, and the hit to households from

rising import costs can be offset by aggressive fiscal spending.

Oil prices were steady, as traders waited to see if the deal

between Israel and Hamas would hold.

Gold was little changed, at $4,039.59.

International Monetary Fund Managing Director Kristalina

Georgieva on Wednesday forecast a slight slowdown in global

growth in 2025 and 2026, warning investors not to get too

comfortable, but said the world economy has proven more

resilient than expected.

China tightened its export controls of rare earth

technology, expanding April's restrictions.