(Updates at 0805 GMT)

By Harry Robertson

LONDON, Aug 5 (Reuters) - German bond yields tumbled to

their lowest in more than a year on Monday as investors rushed

to the safety of government debt and dumped stocks.

Weak U.S. employment data on Friday has shaken markets'

confidence in the global economy, causing traders to price in

heavy rate cuts from central banks in the coming months.

Germany's 2-year bond yield slid more than 15

basis points (bps) to 2.151%, the lowest level since March 2023.

The 2-year yield is particularly sensitive to European Central

Bank interest rate expectations.

The German 10-year yield, the benchmark for the

euro zone, dropped to 2.074%, the lowest since January. Yields

move inversely to prices.

The rally in bonds later moderated, with the German 2-year

yield last down 6 bps at 2.277%. The 10-year yield was 3 bps

lower at 2.129%.

"The weak U.S. employment data has clearly triggered a very

significant market reaction on the back of recession fears and

the anticipation of Federal Reserve rate cuts," said Lyn

Graham-Taylor rates strategist at lender Rabobank.

Data on Friday showed that the U.S. unemployment rate

unexpectedly rose in July to 4.3%, up from 4.1% in June. The

economy added 114,000 jobs in July, down from 179,000 in June

and well below the 175,000 economists expected.

"It has been an extraordinarily weak overnight session as

Asian equities looked to have hit the panic button as they play

catch up with the U.S. data," Graham-Taylor said.

He added that after a "knee-jerk" reaction, "a bit of time

to digest has then seen a paring back" of the moves in bonds.

Japan's Nikkei 225 stock index plunged 12.4%

overnight in its biggest one-day fall since 1987.

Europe's STOXX 600 index was down 2.2% in morning

trading and futures for the tech-heavy U.S. Nasdaq index

were 3.4% lower.

In response to the weak U.S. data, traders have ramped up

their bets on Federal Reserve rate cuts.

They now expect more than 120 bps of rate cuts by the end of

the year, and see a 90% chance of an outsized 50-bp reduction in

September, according to pricing in derivatives markets.

Worries about the knock-on effects of a U.S. slowdown saw

traders price in more than 90 bps of further cuts from the ECB

this year, up from around 70 bps on Friday and 50 bps a week

earlier.

Italian bonds, seen as a riskier investment due to the

country's high debt load, fared less well on Monday.

The gap or "spread" between Italian and German 10-year

borrowing costs rose more than 8 bps to 154 bps, its highest

since late June, before moderating.

"These moves underscore that markets are past the point

where bad macro news is good for spreads," said Hauke Siemssen,

rates strategist at Commerzbank.

"Increasing ECB cut expectations no longer compensate for

the worsening macro outlook."

Italy's 10-year yield was last down 2 bps at

3.618%.