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UPDATE 2-German yields edge higher after U.S. monthly payrolls data

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Recasts, adds detail, comment)

LONDON, Sept 4 (Reuters) - German government bond yields rose for the first time in four sessions on Friday, following a rise in U.S. Treasury yields after August jobs data in the world’s largest economy.

U.S. job growth slowed further in August as financial assistance from the government ran out, disappointing a Reuters poll, but the unemployment rate fell more than expected to 8.4%.

German 10-year benchmark yields rose after the data, up 1 basis point in late trade to -0.48% and off Thursday’s 1-1/2 week lows.

That had followed a rally a session earlier on the back of a sell-off in tech stocks and a survey showing the euro zone’s rebound from its deepest downturn on record faltered in August.

Focus was on European Central Bank’s policy decision next week, especially after executive board member Philip Lane said the appreciation of the euro “does matter” for monetary policy hit the euro and brought market attention to the potential for further easing from the bank.

That pushed money markets to price a full probability of a 10 bps rate cut by the ECB in October 2021 - up from the equivalent of a roughly 50% chance at the end of last week, according to Danske Bank.

Most analysts don’t expect the ECB to change its policy stance at the next week’s meeting, but are focusing on its communication and inflation forecasts instead.

While Nordea analysts also expect no immediate policy change, they note the ECB is under pressure from the appreciation of the euro, a negative August inflation reading and pressure from the Fed’s move to target average inflation.

“Lagarde will not want to repeat her past mistakes by sounding overly hawkish, and we see risks tilted towards the ECB deciding to act already next week,” Nordea analysts Anders Svendsen, Jan von Gerich and Tuuli Koivu told clients, recalling disappointment at the March meeting that sent Italian borrowing costs spiking.

Options for the bank include upsizing its pandemic bond buying programme earlier than expected, committing to a faster pace of buying, providing even cheaper loans, new refinancing operations or changing its forward guidance, they said.

In the primary market, Italy is considering issuing a new 10- or 20-year bond via a syndicate of banks to take advantage of market conditions before regional elections in late September, two market sources told Reuters, with the 20-year bond the most likely option.

Italian 10-year yields were up 2 basis points to 1.08% , pushing the closely watched risk premium they pay over German equivalents to 155 bps, near their highest in a month.

Reporting by Olga Cotaga and Yoruk Bahceli, Editing by William Maclean, Steve Orlofsky and Arun Koyyur

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