Euro zone bonds steady, traders' eyes on U.S. and Britain

LONDON, July 3 (Reuters) - Euro zone government bond yields held steady in early trading on Thursday with the focus on events outside the currency bloc, particularly U.S. jobs data due later in the day, and the British gilt market after Wednesday's sharp selloff there.

Germany's 10-year bond yield, the euro zone benchmark, was flat on the day at 2.61% DE10YT=RR and its rate-sensitive two-year yield, likewise was little moved at 1.86%. DE10YT=RR, DE2YT=RR

U.S. non farm payrolls are due 1230 GMT. Analysts expect the labour market to have slowed further in June, with the unemployment rate expected to have edged up to more than a 3-1/2-year high of 4.3%, as economic uncertainty stemming from the Trump administration's policies curbed hiring.

The expected slowing will probably be insufficient to spur the Federal Reserve to resume its interest rate cuts in July.

The other U.S. development on investors' minds is U.S. President Donald Trump's tax-cut and spending bill on which Republicans in the House of Representatives are struggling to agree.

Closer to home, Euro zone rates traders are watching Britain, after bonds on the continent got caught up in the gilt selloff on renewed worries about the UK's public finances and the future of finance minister Rachel Reeves.

Prime Minister Kier Starmer said later on Wednesday that Reeves will be in post "for a very long time to come," and gilt yields were down around 5 basis points at Thursday's open. GB10YT=RR GB/

Italy's 10-year yield IT10YT=RR was down 2 basis points on Thursday at 3.52% having risen 6 bps the previous day.

France's 10-year yield was down 1 bp, also after a 6 bp Wednesday jump. FR10YT=RR