March 8 (Reuters) - Euro zone bond yields dipped on Friday after U.S. jobs data threw off mixed signals, with payrolls rising but a slowdown in wage growth and a rise in unemployment suggesting the Federal Reserve is dealing with a cooling labour market.
The closely watched jobs numbers showed the U.S. added 275,000 jobs in February, compared to 229,000 in January, a figure which was revised considerably lower.
Average earnings grew just 0.1% month-on-month, less than expected, while the unemployment rate rose to 3.9% from 3.7% in January.
Germany's 10-year government bond yield, the benchmark for the euro zone, fell and was last 6 basis points (bps) lower at 2.236% on Friday, a one-month low, from 2.26% before the data.
The market reaction suggested investors think the data is likely to encourage the Fed to cut interest rates sooner rather than later.
A rise in unemployment will "push back on the scenario of no cuts or even of hikes as the next Fed move," said Florian Ielpo, head of macro at Lombard Odier Asset Management.
U.S. Treasury yields also fell, down around 4 bps on the 10-year note at 4.052%.
Bond markets have become highly correlated in recent months, with investors expecting the world's biggest central banks to cut interest rates at around the same time.
The U.S. data came a day after the European Central Bank kept borrowing costs at record highs at its policy meeting while cautiously laying the ground to lower them later this year, saying it had made good progress in bringing down inflation.
Analysts said the ECB was growing in confidence that it could cut and send a strong signal for June, while the new inflation projections were on track to reach 2%.
Germany's 2-year bond yield, which is sensitive to rate expectations, was last down 9 bps at 2.715%, from 2.76% before the U.S. jobs numbers.
Italy's 10-year government bond yield was 4 bps lower at 3.566%, down from 3.6% previously.
The spread over Germany's 10-year yield - a gauge of the risk premium investors ask to hold bonds of the euro area's most indebted countries - stood at 131 bps. It hit 128.8 bps the day before, its lowest level since January 2022.
French central bank chief Francois Villeroy de Galhau, considered a centrist on the ECB's rate-setting Governing Council, said on Friday that interest rates would be lowered this spring, adding that "spring is from April until June 21".
ECB euro short-term rate (ESTR) forwards last fully priced in a first rate cut by June, having seen a 98% chance of before the U.S. data and after the ECB.
They currently price around 102 bps of rate cuts in 2024. (Reporting by Harry Robertson and Stefano Rebaudo, editing by Emelia Sithole-Matarise, Alex Richardson and Alexander Smith) ;))
