European bond yields seek direction amid dearth of US data

By Joice Alves

LONDON, Oct 3 (Reuters) - Euro zone bond yields were little changed on Friday amid a dearth of U.S. economic data due to the Washington government shutdown, with the release of the key monthly U.S. payrolls report likely being delayed.

The shutdown, the 15th since 1981, left markets in the dark about the national job picture. Analysts said the focus will be on U.S. ISM service data instead due later in the day.

Data showing that the euro zone services sector PMI accelerated to an eight-month high did not move the needle for bonds.

Moderate growth in Germany, Italy and Spain helped the service sector PMI, although France's political uncertainty continued to weigh on its service provider.

Markets were focused on developments in the world's largest economy. Recalling the U.S. government shutdown in 2013, which last for 16 days, with limited impact for markets, Mohit Kumar, strategist at Jefferies said he sees even less impact this time.

"We remain in the camp that even if the shutdown extends for more than a few days, the market impact should be limited," he said.

The German 10-year bond yield DE10YT=RR, the benchmark for the euro zone, was steady at 2.7%.

Bund yields, which have traded relatively flat for the last couple of months, are heading for a second weekly decline, marking their first two-week drop since mid-June.

The spread between U.S. 10-year Treasuries and German bunds DE10US10=RR widened to 138 bps.

Elsewhere, Italy - which has won favour with investors in the last couple of years for its fiscal discipline - is ahead of schedule in lowering its budget deficit to 3% of gross domestic product (GDP), Italy Industry Minister Adolfo Urso said on Thursday.

Italy's 10-year yield IT10YT=RR was also flat at 3.537%, but it was set for its largest weekly decline since May.

The gap between 10-year Italian and German bonds DE10IT10=RR widened to 83 bps.