LONDON, Aug 5 (Reuters) - German bond yields tumbled to their lowest in more than a year on Monday as investors rushed to the safety of government debt and dumped stocks.

Weak U.S. employment data on Friday has shaken markets' confidence in the global economy, causing traders to price in heavy rate cuts from central banks in the coming months.

Germany's 2-year bond yield slid more than 15 basis points (bps) to 2.151%, the lowest level since March 2023. The 2-year yield is particularly sensitive to European Central Bank interest rate expectations.

The German 10-year yield, the benchmark for the euro zone, dropped to 2.074%, the lowest since January. Yields move inversely to prices.

The rally in bonds later moderated, with the German 2-year yield last down 6 bps at 2.277%. The 10-year yield was 3 bps lower at 2.129%.

"The weak U.S. employment data has clearly triggered a very significant market reaction on the back of recession fears and the anticipation of Federal Reserve rate cuts," said Lyn Graham-Taylor rates strategist at lender Rabobank.

Data on Friday showed that the U.S. unemployment rate unexpectedly rose in July to 4.3%, up from 4.1% in June. The economy added 114,000 jobs in July, down from 179,000 in June and well below the 175,000 economists expected.

"It has been an extraordinarily weak overnight session as Asian equities looked to have hit the panic button as they play catch up with the U.S. data," Graham-Taylor said.

He added that after a "knee-jerk" reaction, "a bit of time to digest has then seen a paring back" of the moves in bonds.

Japan's Nikkei 225 stock index plunged 12.4% overnight in its biggest one-day fall since 1987.

Europe's STOXX 600 index was down 2.2% in morning trading and futures for the tech-heavy U.S. Nasdaq index were 3.4% lower.

In response to the weak U.S. data, traders have ramped up their bets on Federal Reserve rate cuts.

They now expect more than 120 bps of rate cuts by the end of the year, and see a 90% chance of an outsized 50-bp reduction in September, according to pricing in derivatives markets.

Worries about the knock-on effects of a U.S. slowdown saw traders price in more than 90 bps of further cuts from the ECB this year, up from around 70 bps on Friday and 50 bps a week earlier.

Italian bonds, seen as a riskier investment due to the country's high debt load, fared less well on Monday.

The gap or "spread" between Italian and German 10-year borrowing costs rose more than 8 bps to 154 bps, its highest since late June, before moderating.

"These moves underscore that markets are past the point where bad macro news is good for spreads," said Hauke Siemssen, rates strategist at Commerzbank.

"Increasing ECB cut expectations no longer compensate for the worsening macro outlook."

Italy's 10-year yield was last down 2 bps at 3.618%.

(Reporting by Harry Robertson; Editing by Amanda Cooper and Emelia Sithole-Matarise)