LONDON, July 8 (Reuters) - French government bond yields briefly traded at their lowest premium to German debt in almost a month on Monday before reversing course, after Sunday's election put the euro zone's second-largest economy on track for a hung parliament.

The yield on France's benchmark 10-year bond was last up 3 basis points on the day at 3.244%, having gradually retreated from a high of 3.37% last week.

German 10-year debt, meanwhile, was flat at 2.536%, leaving the gap with French yields, which reflects the premium investors demand to hold French debt rather than Bunds, 3.25 bps wider on the day at 71.15 bps. That spread briefly hit a session low of 63.7 bps, the smallest since June 13.

A hung parliament in France raises the risk of political gridlock and, as such, the early rally in French bond prices may not last, according to Commerzbank rates strategist Rainer Guntermann.

"The OAT risk premium is likely to persist and cross-country spreads will remain in motion," he said.

French spreads blew out to as much as 85 bps two weeks ago, the most since 2012, as investors fretted about the prospect of either a far-right or far-left bloc gaining a majority in the French elections and what that might mean for spending.

Elsewhere, Italian 10-year yields rose 2.2 basis points to 3.96%, leaving the gap between BTPs and Bunds 0.8 basis point narrower at 140 bps. (Reporting by Amanda Cooper; Editing by Bernadette Baum)