* Bunds rally, periphery spreads widen on euro debt woes
* Bunds could hit record if payrolls add to U.S. recession fears
* Some say ECB may slow down bond buying to up pressure on Italy
By Marius Zaharia
LONDON, Sept 2 (Reuters) - German Bunds rose on Friday, and could re-test record highs in the near term, as the risk of fiscal slippage in Greece and Italy reignited safe-haven bids and U.S. payrolls data later in the day were seen stoking recession fears.
Even if the U.S. payrolls data surprises on the positive side, Bunds are expected to remain resilient given the many hurdles the euro zone -- also facing a bleak economic outlook -- has to overcome as it struggles with a debt crisis.
The data, due at 1230 GMT, is expected to show an increase of 75,000 jobs, down from July's 117,000 rise, but the market was already positioning for a lower number, traders said.
"Certainly anything south of 50,000 should be taken as Bund positive. As for the actual number that would push (Bunds) through the previous record, the closer we get to 25,000 the greater the likelihood," said Rabobank strategist Richard McGuire.
"If there was a sell-off in Bunds on the back of a strong number that (could be) a potential buying opportunity given that the risk is tilted in favour of the bullish tone because of the ongoing debt crisis."
Bund futures FGBLc1 were last 69 ticks higher at 135.99, with 10-year cash yields down 6.5 basis points at 2.058 percent.
If their break above last week's 135.84 were sustained, the door was open to the 136.26 record high, said UBS technical strategist Richard Adcock, adding that momentum indicators were at levels close to triggering fresh buying recommendations.
The 162 percent extension of the Aug. 2010-April 2011 selloff at 138.06 would then be next upside target, he said.
One trader said the next bullish trigger would be a close below 2.08 percent in Bund yields, a level broken during recent sessions, but not on a closing basis.
"Bunds are pretty well supported overall ... I can't see why Bunds (yields) can't get through towards 1.75 percent, while any move towards 2.25 percent will be bought," another trader said about post-payrolls trading ranges.
The first trader also warned about the risk of Bund investors getting caught by a very bad payroll figure that could boost hopes of a third round of quantitative easing by the Federal Reserve, giving a better bid to equities and limiting bond gains.
Supporting that view, Bloxham Stockbrokers' chief economist Alan McQuaid said Bund yields could break below 2 percent in the near-term if the data is weak, but they could bounce back sharply over the next three months if the Fed does pursue further easing.
A MATTER OF SURVIVAL
Signs Greece will miss its deficit reduction targets, concerns over the level of private investor participation in a debt swap and the risk of a second aid deal being delayed by Finland's demands for collateral to back up its loans to Athens are keeping weaker states under pressure.
Italy, a recent victim of a debt market sell-off, is hesitating in passing austerity measures and questions remain over how long European Central Bank buying in secondary debt markets can keep Italian and Spanish yields in check.
ECB President Jean Claude Trichet warned Italy in an interview published on Friday that it must continue structural reforms and cut its budget deficit. Some in the market speculate the ECB may slow down its bond purchases to keep pressure on politicians.
The Italian/German 10-year government bond yield spread expanded by 14 bps to 318 bps, its widest since the ECB first intervened in Italian markets. Spanish and Portuguese equivalent spreads widened by a similar margin.
A third trader said the ECB was buying small amounts of Italian debt.
"At the margin markets are speculating that the ECB got tired of supporting them, but I don't think that's going to happen because it is still a matter of survival of the euro zone as a whole," said Lloyds interest rate strategist Alessandro Mercuri.
Weak demand at this week's Italian and Spanish tenders was taken as a sign that the ECB's intervention was not enough to convince investors to buy new debt issued by the two states, further depressing sentiment. (Graphic by Vincent Flasseur; editing by Nigel Stephenson)