* French auction set to be big test in nervy market
* Net supply ramps up to 75 bn euros in May
* Italian 10yr yields top 2 pct in early trades
* Some analysts say supply impact an excuse for shift (Adds quotes, updates prices)
By John Geddie
LONDON, May 7 (Reuters) - A sharp sell-off in major euro zone bond markets deepened on Thursday, exacerbated by upcoming debt sales of more than 12 billion euros that will prove a strong test of investor demand.
French 10-year yields climbed 3 basis points to 0.95 percent, a level not seen since last December, while benchmark German Bunds DE10YT=TWEB rose by a similar amount to 0.63 percent.
Analysts said the week-long market capitulation, which was first sparked by easing deflation fears and investor weariness with ultra-low yields, had been exacerbated by nervousness that investors may be reluctant to swallow a large sale of French bonds and a smaller Spanish debt auction.
Yields tend to rise ahead of bond auctions as investors make room in their portfolios for the new supply.
"It has been looming for some days because after the moves that we have seen it might be hard to find someone who, amid this volatility, is willing to take on this risk," said Commerzbank strategist Benjamin Schroeder.
"People now have the notion that any gains you build up over months can be wiped out in just a few sessions."
Italian 10-year yields spiked above 2 percent in early trading before reversing losses to trade down on the day at 1.91 percent.
They were still, however, at the highest levels seen in 2015, as were Spanish equivalents at 1.90 percent.
Some strategists hoped the higher yields would help Spain's sale of up to 5 billion euros of 15-, 30-year and inflation-linked bonds on Thursday, but were more worried about the 7.5-8.5 billion euros France was set to sell.
Others, however, said the sales were not having much influence and were being used to try and rationalise a more fundamental shift in market sentiment.
"People often use supply as a scapegoat for market moves. It is something to hang their hat on," said Rabobank's Richard McGuire.
"We continue to argue that it is not supply that drives curve shape or yield levels, it is inflation and growth expectations as we saw during the UK and U.S. variants of QE (quantitative easing)."
If issuance is exacerbating market moves, it could prove to be a torrid month for bond markets with some 75 billion of net issuance expected in May, according to Barclays.
This would trump March's total of 28.5 billion euros and mark a sizeable step-up from negative net supply of 7.5 billion euros in April.