Aug 2 (Reuters) - German government bond yields tumbled on Friday to their lowest level in around six months as investors snapped up sovereign debt after weak U.S. economic data raised fears for global growth and caused stocks to fall sharply.
Data on Friday showed the U.S. economy added 114,000 jobs in July, down from 179,000 in June and well below the 175,000 economists expected. The unemployment rate rose to 4.3%, from 4.1%, raising market expectations for Federal Reserve interest rate cuts this year.
Germany's 10-year bond yield, the benchmark for the euro zone, extended a decline after the jobs data and was last down 10 basis points to 2.151%, the lowest since February.
The yield, which moves inversely to the price, was set to end the week 25 bps lower, the biggest fall since mid-June.
Tensions in the Middle East and Thursday's Bank of England interest rate cut also burnished the appeal of bonds, although the debt of euro zone countries that are seen as riskier investments, such as Italy, fared less well.
"We are seeing strong moves across major markets," said Emmanouil Karimalis, macro rates strategist at UBS.
"It is a combination of several factors: the BoE cut has set a more bullish tone this week, while markets are also increasing their expectations for a Federal Reserve cut," he said.
"The weakness in the stock market, escalating geopolitical tensions in the Middle East, and a slowdown in European government bond supply in August are all supportive factors for European bonds."
Germany's two-year bond yield, which is sensitive to ECB rate expectations, was last down 12 bps at 2.345%, its lowest level since January.
Data on Thursday showed U.S. jobless claims rose more than expected last week to 249,000, the highest since August 2023.
In addition, a measure of U.S. manufacturing activity dropped to an eight-month low in July amid a slump in new orders.
Stocks dropped around the world on Friday, with a broad pan-European index down around 2.2% and U.S. futures down 1.8%.
Concerns about the global economy led riskier government bonds to underperform their peers, with the Italian and French yield spreads versus German bonds widening respectively to 146 basis points (bps), the highest in almost a month, and to 78 bps, the highest since last month's French election.
Italy's 10-year bond yield fell 3 bps to 3.612% while France's was down 5 bps at 2.944%.
Money markets priced in almost 70 bps of further European Central Bank rate cuts in 2024, from about 50 bps a week ago .
(Reporting by Harry Robertson and Stefano Rebaudo; Editing by Alex Richardson and Mark Potter)