(Updates prices in late European afternoon)

By Samuel Indyk

LONDON, July 4 (Reuters) - Euro zone bond yields headed

for their largest weekly fall in a month on Friday as investors

prepared for several days of uncertainty heading towards U.S.

President Donald Trump's July 9 tariff deadline.

Germany's 10-year benchmark Bund yield was down

3 basis points (bps) at 2.549%, having risen to an almost

six-week high on Wednesday of 2.632% when UK gilt yields jumped

due to renewed concerns over fiscal sustainability. Bond yields

move inversely with prices.

Bunds were set for a weekly decline of 4 basis points, the

largest since the week of May 26, according to LSEG data.

Britain's 10-year gilt yield was down 1.6 bps on

Friday at 4.525%, having risen as high as 4.681% on Wednesday.

Wednesday's sharp collapse in British government bond prices

was sparked by a U-turn on planned government cuts to welfare

spending and a tearful appearance by finance minister Rachel

Reeves in parliament.

Euro zone bonds had slipped in tandem with their British

counterparts, led by those countries with their own shaky public

finances, such as France and Italy. Those bond markets were also

recovering on Friday.

France's 10-year yield was down 1.8 bps at

3.26% while Italy's was down 2.5 bps at 3.456%.

The spread between Italian and German 10-year yields

stood at about 90 bps.

U.S. bond markets were closed for the Independence Day

holiday.

Markets were turning their attention to next week's tariff

deadline, with the 90-day pause that Trump activated following

the market chaos unleashed in April set to expire on July 9.

Germany's 10-year Bund yield had its narrowest monthly

trading range since 2021 in June, Commerzbank said earlier this

week, as calm returned to markets during the tariff pause.

"The market is waiting to see what happens with the tariffs

in the United States," Birgit Henseler, senior analyst at DZ

Bank, said.

Henseler added that there could be increased volatility in

the next week as details emerge about Trump's plans for import

tariffs with the United States' major trading partners.

Focus this week has also been on the European Central Bank's

annual forum in Sintra, Portugal, with policymakers strongly

hinting at a pause to the rate cutting cycle later this month

after 200 bps of easing in just over a year.

Futures are pricing in just 1.5 bps of ECB easing in July,

implying about a 5% chance of a rate cut. By December, markets

are pricing in about 28 bps of easing, implying just one more

rate cut by the end of the year.

"Absent a catalyst like a further escalation in the trade

war ... a sharp front-end repricing is unlikely," Barclays rates

strategist Rohan Khanna said in a note.

Germany's two-year yield, which is sensitive to

changes in European Central Bank policy expectations, was last

down 3.5 bps at 1.805%, but remained well within its recent

narrow range.