(Updates at 1450 GMT)

By Harry Robertson and Samuel Indyk

LONDON, June 5 (Reuters) - Germany's 10-year government

bond yield fell for a third straight day on Wednesday after data

suggested the U.S. labour market is slowing, with focus set to

shift to the European Central Bank's policy announcement on

Thursday.

A report on private payrolls showed U.S. hiring slowed to a

four-month low in May, adding to recent signs that the economy

is cooling and pulling global bond yields lower. The first rate

cut from the Bank of Canada in four years was also helping the

mood in bond markets.

However, a closely watched purchasing managers' index survey

later showed that the U.S. services sector snapped back strongly

to growth last month, causing yields to rise again somewhat.

The German 10-year bond yield, the benchmark for

the euro zone bloc, was last down 3 basis points (bps) at

2.513%, around its lowest in two weeks. Yields move inversely to

prices.

Yields have fallen in recent days as data from the United

States, including a weak consumer spending report last week, has

suggested the economy might finally be slowing enough to allow

the Federal Reserve to cut interest rates.

"U.S. yields have been falling for four days straight on

growth pessimism," said Benjamin Schroeder, senior rates

strategist at ING. "Bund yields have been dragged lower too."

European yields tend to move on U.S. data thanks to the size

and importance of the American economy and other central banks'

wariness of straying too far from the Fed.

Germany's two-year bond yield, which is more

sensitive to interest rate expectations, was 1 bp lower at

2.984%.

The ECB is widely expected to lower its deposit rate from a

record high of 4%, but there remains uncertainty about the

future path for rates.

Money market traders are pricing around 64 basis points

(bps) of cuts this year, implying two quarter-point moves and

around a 50% chance of a third cut.

"We're all sitting and waiting for tomorrow. We think the

ECB will do the 25 (basis point cut) and then say we have to

wait and see how data evolves," said Jens Peter Sørensen,

director, fixed income research at Danske Bank.

"If they do that then I think the market reaction should be

fairly benign."

Some policymakers have tried to take a move at the following

meeting in July off the table, while others, including French

rate-setter Francois Villeroy de Galhau, appeared more open to a

second straight move.

Italy's 10-year yield was 4 bps lower at 3.825%,

meaning the yield gap between Italian and German bonds

, a measure of risk premium investors seek to hold

Italian paper, stood at 130 bps.

(Reporting by Samuel Indyk; Editing by Andrew Heavens, Sriraj

Kalluvila and Emelia Sithole-Matarise)