Oct 25 (Reuters) - Euro zone government bond yields were

steady on Friday ahead of a German survey that is likely to show

business morale improved slightly in Europe's largest economy

after deteriorating for four consecutive months.

German 10-year bond yield, the benchmark for the

euro zone bloc, was largely unchanged at 2.249% after easing for

two straight sessions from a seven-week high.

A survey on Thursday showing euro zone business activity

contracted again in October fuelled bets on bigger interest rate

cuts from the European Central Bank and pushed yields lower as

prices rose.

However, German Ifo institute's business climate index is

expected to have improved slightly to 85.6 for October from 85.4

in the prior month, which fanned fears that Germany may have

tipped into recession. The survey is due at 0800 GMT.

Traders are fully pricing a quarter-point cut from the ECB

in December, with a 44% chance of a half-point move.

Germany's two-year bond yield, which is more

sensitive to rate expectations, rose 2 bps to 2.118%.

Focus will also be on Moody's review of France's sovereign

rating later in the day after the rating agency warned the

outcome of France's election was a negative.

Earlier this month, rival agency Fitch cut France's outlook

to "negative" from "stable" and kept its rating at AA-.

The spread between French and German 10-year

yields - the premium investors demand to hold France's bonds -

was last at 72.5 bps.