The annual inflation rate in the euro zone's second biggest economy eased to 2.0 percent from 2.4 percent in September and quarterly growth accelerated to 0.7 percent in the third quarter, its strongest in over a year, INSEE said on Thursday.
Financial markets, which are on tenterhooks for any sign of price pressures that might prompt an early increase in ECB interest rates, focused on the inflation data and drove euro zone government bond futures away from earlier 7-month lows.
"Overall, we've had very encouraging data this morning. And the icing on the cake is that there are no inflationary pressures. The economy seems to have resisted the oil shock," said Nicolas Claquin, economist, HSBC France.
French Finance Minister Thierry Breton welcomed the latest batch of figures, which included a strong jump in manufacturing in September, and said two weeks of riots in French suburbs were not having any impact at the macroeconomic level.
He is counting on a pick up in growth to cut the budget deficit to the EU limit of 3 percent of gross domestic product this year and to 2.9 percent in 2006. The government also needs strong growth to make good its pledge to cut joblessness.
"It's a very good piece of news but it is not a surprise to me as finance minister because I've been saying for months that all the lights for the French economy had turned to green," Breton told Europe 1 radio.
"Growth in the second half of the year will be very much superior to what it was in the first half of the year, and for the year we will be at between 1.5 and 2.0 percent," he added, repeating the government's 2005 growth forecast.
INSEE said 2005 growth would amount to 1.5 percent even if there was no economic expansion during the rest of the year.
BNP economist Dominique Barbet said the main factor driving the headline inflation rate lower was the relative stability of energy prices, whose monthly rise of 0.1 percent caused the annual rate of change in this component to slow.
Consumer prices excluding energy costs fell 0.1 percent on a monthly basis and rose 1.0 percent from a year.
Such core measures of inflation are keenly scrutinised by financial markets as they try to judge whether the ECB's declared strong vigilance against price pressures will translate into an early increase in interest rates.
The ECB's monthly bulletin said on Thursday the short-term outlook for inflation has deteriorated significantly given recent developments in oil prices.
Euro zone finance ministers earlier this week renewed their calls for the ECB to refrain from raising rates in order to give growth a chance to gather momentum.
While the early estimate of French gross domestic product, which showed quarterly growth picked up from 0.1 percent in the second quarter, bodes well for the broader euro zone, analysts warned against extrapolating too much.
"This figure may be regarded by the market as an advance signal for the euro zone GDP (gross domestic product)," said Barbet at BNP Paribas.
"However the specific structure of French growth in Q3, with strong consumption and a stronger-than-expected gain in exports may be somewhat misleading."
While the GDP report did not include a breakdown, figures released in October had showed consumer spending rose at its strongest quarterly rate in almost eight years in the third quarter.
Nicolas Sobczak at Goldman Sachs said the boom in consumption seen in the summer was unlikely to be repeated in the coming quarters but added the French economy looked to have weathered the shock of higher oil prices quite well.
"With the euro going down, and strong world demand, the external sector will remain supportive," he said.
"And if consumption resists the oil price shock during the winter months, there is good chance that the recovery could be for real this time in France, as the labour market may finally consolidate."