* Benchmark yields set for biggest weekly rise in 3 months
* Fitch downgrades debt ratings of Italy, Spain
* U.S. bond market closed Monday for U.S. Columbus Day
NEW YORK, Oct 7 (Reuters) - The prices of U.S. Treasury securities fell on Friday, despite ratings cuts on Italy and Spain that sent stocks into the red, as Treasury traders reacted to a better-than-expected reading on job growth for September.
Benchmark yields were on track for their biggest weekly rise in three months. But volume in afternoon trading was low, as many traders closed out early ahead of a three-day weekend for the bond market.
"There hasn't been the volume we would need to believe that something's really going on," said Charles Dugan, managing director of fixed income at Wall Street Access in New York. "The afternoon's been incredibly quiet."
Friday's government data on payroll growth beat low forecasts, but the jobless rate remained stuck at 9.1 percent.
"This is clearly a vote for the slow growth camp rather than the recession camp, so there is small upward pressure on rates," said Leslie Barbi, head of fixed income at RS Investments in New York, which manages $30 billion in bonds.
The U.S. Labor Department said employers added 103,000 jobs in September, well above the 60,000 predicted by analysts polled by Reuters. The August figure was revised up to a 57,000 increase after it was initially reported at zero.
The latest data also reduced bets the U.S. Federal Reserve will be under the gun to enact a third round of quantitative easing to stimulate the U.S. economy.
"This report doesn't give the impetus for the more dramatic easing from the Fed, but there are no regrets to what they have been committed to," said Bill Irving, a portfolio manager who oversees about $42 billion in bonds at Fidelity Investments in Boston.
In addition to keeping short-term rates near zero into mid-2013, the Fed this week started its $400 billion "Operation Twist" bond program aimed at lowering long-term borrowing costs and boosting loan activity -- whose sluggish growth has worried Fed policymakers.
The U.S. bond market will be closed on Monday for the U.S. Columbus Day holiday.
EUROPE REMAINS WILD CARD
The euro zone debt crisis remained a source of uncertainty as policymakers struggled to develop a program to protect banks and instill investor confidence.
Ahead of crucial summit talks on Sunday, Germany and France, the region's two strongest members, were split over how to strengthen shaky European banks and prepare for a possible Greek default.
"Europe is a wild card," Fidelity's Irving said. "Longer term, the end game for Europe could be messy.
"We are one headline away from the bond market rallying."
Fitch served a stark reminder about the problem plaguing the euro zone. The rating agency downgraded the credit ratings of Italy and Spain, the region's third and fourth biggest economies.
The news helped knock U.S. blue-chip stocks into negative territory and revived some safety bids for Treasuries.
In midday trading, prices on 30-year Treasury bonds were down 31/32 in price, yielding 2.99 percent, up from 2.94 percent late Thursday, but down from a session high of 3.08 percent.
Benchmark 10-year notes fell 16/32 points to yield 2.04 percent, up from 1.99 percent at Thursday's close. The 10-year yield is poised for its biggest weekly rise since early July, when it jumped 31 basis points.
The two-year note was off 1/32 in price and yielding 0.29 percent, the highest since early August.