August 4, 2017 / 11:06 AM / a year ago

UPDATE 2-German bond yields set for biggest weekly drop since April

* Euro zone bond yields rise after U.S. jobs data

* U.S. Treasury yields jump

* Bund yields still set to end week sharply lower

* U.S.-Russia probe boosts demand for safe-haven assets

* Euro zone periphery govt bond yields (Recasts after U.S. jobs data, updates price action)

By John Geddie and Dhara Ranasinghe

LONDON, Aug 4 (Reuters) - Europe’s benchmark government bond yield was set for its biggest weekly fall since April on Friday as an investigation into suspected Russian meddling in the 2016 U.S. election fed demand for safe-haven assets.

Reuters reported on Thursday that a grand jury has issued subpoenas in connection with a meeting before the election that included President Donald Trump’s son, his son-in-law and a Russian lawyer.

For investors, the development serves as yet another sign that Trump may be distracted from seeing through ambitious spending plans that could support the world’s biggest economy.

Stronger-than-expected U.S. jobs numbers brought some comfort to world markets — boosting the dollar and pushing bond yields in the U.S. and Europe higher.

But yields in Germany, the euro zone’s benchmark government bond issuer, remained on track to end the week sharply lower in a sign that demand for top-rated bonds remained strong.

“Bond markets have been trading positive all week, so the risks were for a stronger U.S. jobs number and that is what we got,” said Orlando Green, European fixed income strategist at Credit Agricole.

“All in all, the underlying mood remains supportive because of low risk appetite.”

The closely-followed non-farm payrolls report showed the U.S. economy created 209,000 new jobs last month, while wage growth was in line with analysts’ expectations.

In late Friday trade, Germany’s benchmark 10-year Bund yield was up 1.5 basis points at 0.47 percent.

But it held near a one-month low hit earlier in the day and was on track to end the week down 7 bps — its biggest weekly fall since April.

Outside Germany, other euro zone bond yields were 2-3 basis points higher on the day.

Benchmark U.S. 10-year Treasury yields were up 5 basis points at 2.27 percent.

The euro tumbled against a broadly firmer U.S. dollar as the robust jobs data revived bets on a December interest rate rise from the U.S. Federal Reserve.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=

Reporting by Dhara Ranasinghe and John Geddie, Editing by Toby Davis

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