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

lower on Friday as the recovery in the bloc's bond markets

continued following the gilt-induced sell-off on Wednesday,

while focus was turning to 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 Britain's gilt yields

jumped due to renewed fiscal sustainability concerns. Bond

yields move inversely with prices.

Britain's 10-year gilt yield was down 1 bp on

Friday at 4.539%, 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 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 2 bps at 3.258%

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.

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 lowest 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 plan 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 bps at 1.809%, but remained well within its recent

narrow range.