MUMBAI, Sept 5 (Reuters) - Euro zone government bond

yields dipped on Friday, stabilising at the end to a volatile

week, ahead of potentially disruptive U.S. data on monthly

employment where a weak report could see Bunds lag Treasuries.

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

zone bonds, was down 2 basis points at 2.705%, cooling off from

the five-month peak of 2.80% touched earlier in the week.

Similarly, the 30-year German yield was also

down 2 bps at 3.324%, extending its decline after hitting a

14-year high of 3.434% on Wednesday, amidst a global selloff in

long-duration government debt due to worries over the

sustainability of public finances in developed economies.

Other regional bond yields, like those in France and Italy,

were trading in line with their German counterparts.

Unstable politics and reduced demand from investors like

pension funds for long-dated debt have also weighed on

long-duration bonds this week, with markets now awaiting the

outcome of a no-confidence vote in France on September 8.

In the near-term, weaker U.S. labour market indicators have

helped cement expectations of a rate cut by the Federal Reserve

this month, pulling long-dated yields below this week's

multi-year highs.

Those expectations could be tested later in the day, if

non-farm payrolls increase by more than expected. Economists

polled by Reuters expect a rise of 75,000 jobs in August.

The rate-sensitive 2-year U.S. Treasury yield was

last a touch lower at 3.58%, lingering near its lowest level

since May.

However, a payrolls report that comes in well below

expectations, and reinforces the need for a Fed rate cut, could

trigger a larger rally in Treasury prices. That could push

yields down faster than those on German debt, which are

factoring in almost no chance of another rate cut in the euro

zone for the coming months.