EURO GOVT-Bunds slump to session low after U.S. payrolls

LONDON, Sept 3 (Reuters) - German Bund futures fell to session lows and yields rose after the key U.S. employment report showed employers shed fewer jobs than expected in August.

The sell-off in Bunds sent peripheral yield spreads narrower -- with the Italian 10-year spread hitting its narrowest since August 19 -- and briefly widened the U.S./German 10-year government bond yield spread to 45 bps from 40 bps as U.S. Treasuries fell faster than Bunds.

September Bund futures FGBLc1 marked a session low of 131.81, 91 ticks lower on the day and compared with 132.54 ahead of the data.

Two-year bond yields DE2YT=TWEB were 2.8 bps higher at 0.645 percent, with 10-year yields DE10YT=TWEB up 7.5 bps at 2.357 percent. Thirty-year yields were up 9.5 bps at 2.972 percent.

Spanish 10-year government bond yields ES10YT=TWEB rose 5 bps to briefly pop above 4.0 percent.

U.S. employment fell for a third straight month in August, but the decline was far less than expected and private payrolls growth surprised on the upside, easing pressure on the Federal Reserve to prop up growth [ID:nN03273418].