French bonds lead euro zone yields higher 

LONDON, Oct 21 (Reuters) - Euro zone bond yields rose on Wednesday, led by another increase in French borrowing costs, as investors took stock of the widespread protests across France that are putting pressure on a government that is struggling to shore up its finances.

A rebound in the oil price back above $110 a barrel, after a short-lived drop the previous day, added to the negative sentiment.

In France, benchmark 10-year OAT yields have risen more than 16 basis points so far this week, by far the most among the bonds of the world's largest economies, which have risen by an average of 5.4 bps, according to LSEG data.

French yields, which are about to hit 5% for the first time since mid-2002, were last up 3 bps on the day at 4.948%.

The premium of French yields over benchmark 10-year Bunds has also been edging back towards early October's 15-year high of nearly 160 bps. This discrepancy in yields reflects the extra return investors demand for lending to France rather than Germany. The French-German spread is by far the widest in the euro zone, at 150 bps.

The violence had calmed down by Tuesday, but more protests are planned for Saturday and companies are feeling the financial impact. On Tuesday, Carrefour, Europe's largest food retailer, cut its targets for operating profit margin growth because of the riots.

"The French concerns are still there, even if the domestic unrest seems to have calmed for now," Deutsche Bank strategist Jim Reid said.

Investors are also keeping an eye on Italy, where similar protests in Milan against the rising cost of living over the weekend prompted Prime Minister Giorgia Meloni to approve tougher anti-rioting measures on Tuesday.

Italian bonds have not suffered the same kind of punishment as French debt this week. Italian 10-year yields have risen only 8 bps so far, half the increase in French borrowing costs, which left the premium of Italian BTPs to Bunds a touch narrower on the day at 113 bps.

German 10-year yields, which serve as the benchmark for the wider euro zone, were also up 3 bps on the day at 3.426%, heading for a rise of around 1.5 bps this week, while 2-year German debt yields rose 3 bps to 3.083%.

(Reporting by Amanda Cooper; Editing by Andrew Heavens)