Euro zone bond yields steady, rate cut expectations little changed

LONDON, Aug 7 (Reuters) - Euro zone bond yields are struggling for direction on Thursday after rising slightly in the previous session, with investors focusing on the outlook for monetary policy and supply from France and Spain.

Germany's 10-year bond yield, the euro zone's benchmark, was up less than 1 basis point at 2.651%, within its recent tight range.

"In the absence of any major drivers, the market is lacking direction," Jefferies economist Mohit Kumar said in a note.

Germany's two-year yield, which is more sensitive to changes in interest rate policy, was little changed at 1.9134%.

Market pricing for European Central Bank rate cuts remains little changed. Investors are only pricing in a 12% chance of a cut at next month's meeting, with about a 90% chance they cut rates by March.

In contrast, markets have recently added to bets for rate cuts from the U.S. Federal Reserve after soft jobs data for July, while the Bank of England is expected to lower borrowing costs when it announces policy later on Thursday.

Futures markets are now almost fully pricing in a rate cut from the Fed next month, with 60 bps of easing priced by the year-end, implying two quarter-point cuts and a 40% chance of a third.

Investors will also be watching bond auctions from France and Spain.

France is scheduled to sell up to 10.5 billion euros ($12.26 billion) of longer-dated bonds, while Spain's treasury is issuing a total of 4-5 billion euros of three-, 10-, and 20-year bonds.

10-year bond yields in France, Spain and Italy were all little changed.

($1 = 0.8564 euros) (Reporting by Samuel Indyk; Editing by Rashmi Aich)