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* German economy shrinks slightly in Q3

* Sanofi recovers, boosts healthcare stocks

* ArcelorMittal falls, confirms talks to nationalize Kazakh unit

Oct 30 (Reuters) - European shares opened the week on a strong footing, boosted by a drop in bond yields with investors assessing key inflation data, while Siemens Energy shares extended recovery on continued talks over project-related guarantees.

The pan-European STOXX 600 gained 0.6% by 0943 GMT, after falling over 4% in the past two weeks.

Aiding equities, euro area sovereign bond yields dropped with investors reckoning that markets have broadly priced in a higher-for-longer outlook for policy rates.

Data showed inflation in Germany's most populous state of North Rhine-Westphalia eased in October, while Spain's 12-month inflation in October was unchanged from the previous month at 3.5%.

Another set showed the German economy shrank slightly in the third quarter as Europe's largest economy continues to be weighed down by weak purchasing power and higher interest rates.

"The German economy is likely to contract somewhat further in the winter half-year because it is suffering from the massive rate hikes by the ECB and almost all Western central banks," Commerzbank analysts wrote in a note.

"At the same time, consumption is unlikely to recover."

The German DAX was up 0.5%.

For the week, investors will keep a close eye on policy announcements from Japan, the U.S. and the UK. Europe's inflation data will also be monitored after the European Central Bank left interest rates unchanged last week.

The healthcare sector was the top boost with a 0.9% rise, aided by a more than 2% jump each in Novo Nordisk and Sanofi. Sanofi recovered from Friday's plunge when it announced it was abandoning its 2025 profit target.

Drugmaker Swedish Orphan Biovitrum (SOBI) gained 4.8% after beating third-quarter results expectations.

Siemens Energy jumped 9.2% to the top of the STOXX 600 after Chairman Joe Kaeser said the company does not need money from the state and as talks with Berlin over project-related guarantees continued.

Dassault Systemes rose 2.1% after JP Morgan upgraded the French software maker to "overweight" from "underweight" on improved license trajectory and large deals return.

On the flip side, ArcelorMittal dropped 5% after confirming discussions to nationalise its Kazakh coal mine in which at least 45 people died in a fire over the weekend. (Reporting by Ankika Biswas in Bengaluru; Editing by Varun H K and Janane Venkatraman)