June 30 (Reuters) - Shorter-dated German bond yields fell to the lowest level in almost four weeks and the cost of insuring exposure to corporate debt surged on Thursday as markets continued to trade on growth risks.

The fastest interest rate hiking cycle in decades to combat soaring inflation has hit consumer demand, adding to investor fears of a growth slowdown or outright recession. Central bankers this week have signalled once again that they will prioritise the fight against inflation over growth.

On Thursday, data from France showed annual June inflation came in slightly higher than expected at a record 6.5% ahead of a euro zone-wide print on Friday, the last the ECB will scrutinise ahead of its July 21 policy meeting, where it is expected to hike rates by 25 basis points.

But monthly figures were in line with a Reuters poll's expectations, while goods price inflation fell.

Germany's two-year yield, the most sensitive to interest rate expectations, dropped as much as 21 bps to 0.620%, the lowest since June 3.

The German 10-year yield, the benchmark for the euro zone, was down nearly 14 bps to 1.367% by 1519 GMT, adding to a 13 bps fall on Wednesday.

"It's probably a combination of things. A little bit of a relief rally that French inflation wasn't higher, but also risk assets are really starting to deteriorate now. It's a pessimistic drop on risk assets that's probably leading to some short covering or a bit of buying in rates," said Peter McCallum, rates strategist at Mizuho.

Italy's 10-year yield was down 10 bps to 3.395%, with the closely watched spread over its German peer widening slightly to 203 bps.

The moves add to a tumble in bond yields on Wednesday after German inflation unexpectedly fell in June, though economists warned this was driven by one-off effects and Spanish data showed inflation rising much higher than expected to more than 10%.

"There is the broader recession risk narrative playing up in markets but not much by way of new headlines (on Thursday) to support that," said Antoine Bouvet, senior rates strategist at ING.

"It increasingly feels like the inflation narrative is giving way to recession as the main focus of markets."

Month-end flows into bond markets and upcoming flows from German bonds in July may also be supporting bonds, Bouvet said. Bond yields move inversely with prices.

In other signs of recession fears, the iTraxx Europe crossover index, which measures the cost of insuring exposure to sub-investment grade European corporate high yield bonds, rose above 600 basis points for the first time since April 2020. It later pared gains to trade at 585.7 bps.

It has risen rapidly from around 430 bps at the start of the month.

A similar CDS index for investment-grade debt has also risen sharply, to 122 bps, the highest since March 2020.

"Liquidity in corporate credit markets is poor, very poor," Andrew Balls, global chief investment officer for fixed income at PIMCO, told a media webinar.

In the United States, Treasury yields slid for a third straight day after soft consumer spending data and still elevated consumer prices kept recession concerns alive. (Reporting by Yoruk Bahceli; additional reporting by Danilo Masoni; Editing by Alex Richardson, Hugh Lawson and David Evans)