By Dhara Ranasinghe
LONDON, May 4 (Reuters) - Euro zone bond yields were broadly higher in late European trade on Friday, giving up earlier falls on the back of weaker-than-expected U.S. jobs data as stock markets bounced back.
A subdued European session left regional bond markets taking their cue once more from the U.S. Treasury market.
Long-term borrowing costs in Germany, the euro zone's biggest economy and its benchmark bond issuer, briefly fell to 2 1/2-week lows after weaker-than-expected U.S. jobs data.
Non-farm payrolls increased by 164,000 jobs last month, less than analysts had forecast. Wages barely rose last month, which could ease concern that inflation pressure was building and may keep the Federal Reserve on a gradual path of monetary policy tightening .
But the fall in bond yields proved short-lived as world stock markets looked to end the week on a strong note.
European shares were up 0.5 percent, while Wall Street shares rallied 1 percent in early trade .
Most euro zone 10-year bond yields were up 2 to 4 basis points, with Germany's 10 Bund yield 2 bps higher at 0.55 percent, having fallen to a low of 0.52 percent.
"U.S. equities opened lower after payrolls but have found themselves on a firmer footing, which is taking some of the steam out of the bonds rally post-payrolls," said Richard McGuire, head of rates strategy at Rabobank in London.
The rise in euro zone bond yields came after sharp falls on Thursday, following weaker-than-expected euro zone inflation data. That has helped keep the gap between U.S. and German bond yields near three decade highs.
Meanwhile, Italian 10-year yields underperformed in the face of political volatility.
President Sergio Mattarella will meet party leaders on Monday to try to secure a coalition deal following an inconclusive March 4 election. Failing that, he is expected to seek backing for a technocrat government to help keep Italy's finances on track.
Italy's 10-year bond yield was up almost 5 bps in late trade at 1.79 percent, pushing the gap over German peers to 124 bps - the widest in more than two weeks. (Reporting by Dhara Ranasinghe and Danilo Masoni, editing by Larry King)