(Updates prices at 1610 GMT)

By Harry Robertson and Medha Singh

Nov 1 (Reuters) -

Two-year euro zone bond yields fell on Friday after data

showed the U.S. labour market slowed sharply in October, adding

to signs of a cooling in the world's biggest economy.

U.S. nonfarm payrolls grew by just 12,000 in October, in a

month when hurricanes and strikes impacted the figures. That was

down from a 223,000 rise in September and well below economists'

expectations of a 113,000 increase.

U.S. short-dated bond yields, which are sensitive to

interest rate expectations, fell sharply as investors nudged up

their bets on Fed rate cuts. Yet they later rebounded to stand

higher on the day after separate data showed a gauge of prices

paid by manufacturers rose sharply.

Germany's 2-year bond yield dropped before rising

slightly and was last down 4 basis points (bps) at 2.279%,

having traded at 2.305% before the data. Yields move inversely

to prices.

The size and importance of the U.S. economy and dollar means

U.S. economic data moves markets around the world, and

expectations about Fed policy spill over to other central banks.

Germany's 10-year bond yield fell before also

rising and was last up 1 bp at 2.403%. It was set for its

biggest weekly rise since April at 11 bps.

The monthly U.S. jobs figures showed the unemployment rate

held steady at 4.1% in October, while average earnings growth

was 4% year-on-year, also unchanged from the previous month.

"While the Fed will likely attribute some of the weakness in

today's data to one-off factors, the softness... argues for the

Fed to continue its easing cycle at next week's meeting," said

Lindsay Rosner, head of multi sector fixed income investing at

Goldman Sachs Asset Management.

The U.S. 2-year Treasury yield fell 8 bps before

rebounding to sit 2 bps higher, around its highest level since

the start of August.

U.S. yields have risen sharply in recent weeks, reflecting a

run of strong economic data and rising market expectations that

Republican former president Donald Trump will beat Democratic

Vice President Kamala Harris in next Tuesday's election and

implement inflationary tariff and tax policies.

European bond yields have also risen this week, driven by

the rise in U.S. yields and a jump in UK borrowing costs in the

wake of the new Labour government's budget, as well as

stronger-than-expected euro zone inflation data for October.

Italy's 10-year bond yield was 2 bps higher at

3.682%, up around 17 bps for the week.