(Updates at 1455 GMT)

By Harry Robertson and Stefano Rebaudo

May 3 (Reuters) - Euro zone bond yields fell on Friday

after data showed the U.S. labour market was much weaker than

expected in April, raising hopes for interest rate cuts.

Nonfarm payrolls data showed the U.S. labour market added

175,000 jobs in April, down from 315,000 in March and well below

the 243,000 increase economists expected.

Bond yields fell across the board as investors bet the

numbers would make the Federal Reserve more likely to lower

borrowing costs this year and make other central banks feel more

comfortable in doing the same.

However, a separate survey report later in the day, showing

a sharp rise in the gauge of prices paid by services companies

in April, caused bond yields to rise again, leaving them just

below where they were before the labour figures.

Germany's 10-year bond yield, the benchmark for

the euro zone, was last down 4 basis points (bps) at 2.518%

after falling as much as 10 bps. Yields, which move inversely to

prices, traded at 2.534% just before the jobs data.

Oliver Allen, senior U.S. economist at Pantheon

Macroeconomics, said he was not overly concerned by the survey

data on services prices.

"With the labour market softening and indicators of wage

growth still firmly pointing lower, we think that the risk of a

renewed acceleration in core services inflation is very low," he

said.

Yields were on track to end the week lower after the Fed

held interest rates on Wednesday and Chair Jerome Powell said

another hike was unlikely. He suggested rate cuts remain on the

table, albeit likely later than expected after a run of strong

economic data.

The 10-year U.S. Treasury yield, which sets the

tone for borrowing costs around the world, was last down 4 bps

at 4.528%, 14 bps lower for the week.

Investors expect the European Central Bank will be able to

cut interest rates more than the Fed this year, given the euro

zone's weaker growth and cooler inflation. However, the power of

the U.S. economy means policymakers could be reticent to stray

too far from the Fed's path.

Italy's 10-year yield was 4 bps lower at 3.835%,

from 3.85% before the U.S. data.

The gap between Italian and German 10-year yields

- a gauge of the risk premium investors ask to

hold bonds of the euro area's most indebted countries - was flat

at 131 bps, having earlier fallen to its lowest level since

March below 130 bps.

Market participants will focus on Fitch's review of Italy's

credit rating after the European market closes.

"A negative outlook seems possible today, but we consider it

more likely that the rating agency will wait until more clarity

on the next budget emerges," said Christoph Rieger, head of

rates and credit research at Commerzbank.

He added that the Italian spread recently tightened "defying

fundamental impulses."