LONDON - Euro zone bond yields steadied on Thursday after a fall the previous day, and the gap between German and French 10-year yields narrowed further as investors unwound the political risk premium built ahead of French parliamentary elections.

U.S. inflation data due later in the day is the week's key scheduled event for global government bond markets - indeed all asset classes - and traders were nervous about placing large bets in the buildup to that.

The data will reinforce or challenge current market expectations that the Federal Reserve is more likely than not to cut rates in September.

Germany's 10-year bond yield, the benchmark for the euro zone bloc, was little changed at 2.54% after a 2 basis point fall Wednesday.

France's 10-year yield was also steady at 3.19% after a near-7 bp move the previous day, and the gap between the two - a now closely watched gauge of French risk - briefly touched 62.4 basis points in early trading, its lowest since June 13.

That shot to its highest since 2012 in late June at 85 bps as investors feared France's parliamentary election would lead to a majority for high spending parties, instead of the legislative gridlock that actually resulted.

Italy's 10-year yield was little changed​ at 3.86%, and the gap between Italian and German bunds widened 0.2 basis points to 131 bps.

Germany's two-year bond yield, which is more sensitive to European Central Bank rate expectations, was little changed at 2.9%.

(Reporting by Alun John Editing by Bernadette Baum)