* U.S. September non-farm payrolls below forecast
* German Bunds hit two-week highs as Fed tapering seen delayed
* Other euro zone debt also firms
By Marius Zaharia
LONDON, Oct 22 German Bund futures hit two-week highs on Tuesday after a below-forecast U.S. September jobs report raised expectations the Federal Reserve would further delay its plans to reduce bond-buying stimulus.
U.S. employers added 148,000 jobs last month - economists polled by Reuters had expected 180,000 - and this suggested the U.S. economic recovery had less momentum than initially thought.
The September report was delayed from Oct. 4 due to a 16-day U.S. government shutdown caused by political wrangling over the budget just as the United States was approaching its borrowing limit and risked a default.
The 11th-hour deal to lift the debt ceiling reopened the government, but provided fund only until Jan. 15, raising the prospect of another budget battle early next year.
This month's jobs data, due on Nov. 8 instead of Nov. 1 as originally planned, will give further clues to the impact such political uncertainty might have on the economy. However, Tuesday's report has already shifted expectations of when the Fed will scale back its bond-buying stimulus programme.
"It was clearly weaker than expected ... and it solidified expectations (Fed) tapering would be pushed back into next year," ICAP strategist Philip Tyson said.
Bund futures closed 63 ticks higher on the day at 140.54, having traded flat before the report. They have risen more than 150 ticks since Wednesday's U.S. debt deal.
Cash 10-year German yields fell 5.5 basis points to 1.79 percent. Other euro zone debt yields also fell, with expectations of more central bank liquidity lifting assets broadly. Equivalent Spanish and Italian yields dropped 7 bps to 4.21 and 4.12 percent, respectively.
The next important data for investors includes euro zone manufacturing and services PMIs on Thursday and the German Ifo business sentiment survey on Friday.
The numbers will help set expectations of whether the European Central Bank will ease policy in the near term. Some market participants are already speculating the ECB may offer a new round of long-term loans to banks to keep liquidity ample.
"If the data is weak, markets will jump on the idea that the ECB could get creative again with LTROs (long-term loans)," Commerzbank rate strategist David Schnautz said.
He added that expectations of softer monetary policies across the globe made the market environment "probably as good as it gets" for an auction of up to 2 billion euros of 30-year German debt on Wednesday.