By Samuel Indyk and Harry Robertson
LONDON (Reuters) -Euro zone bond yields extended gains on Friday after data from the United States showed that hiring picked up by slightly more than expected in September.
The closely watched non-farm payrolls report showed that the U.S. economy added 263,000 jobs last month, more than the 250,000 economists had been expecting, while the unemployment rate fell to 3.5% from 3.7% in August.
U.S. and euro zone bond yields rose as investors took the data as a sign that the Federal Reserve would press on with its aggressive interest rate hikes.
By 1505 GMT, Germany's 10-year government bond yield was up 11 basis points (bps) to 2.1930%. Last week it touched its highest level in 11 years, topping 2.35%.
The U.S. 10-year Treasury yield was last up 5 bps to 3.8733%. Yields move inversely to prices.
Government bond markets have been on a wild ride over the last two weeks.
Market chaos in Britain following the government's tax-cutting "mini budget" on Sep. 23 caused a jump in global yields. But they dropped sharply this week after the Bank of England intervened to buy UK bonds again and the British government u-turned on some of its tax plans.
However, the focus on Friday was on U.S. economic data and what it means for the Fed's tightening cycle.
There was "nothing in the U.S. jobs report to dissuade the Fed from continuing with its aggressive path of monetary tightening," said Stuart Cole, head macro economist at Equiti Capital.
Cole said he expects the Fed to raise interest rates by 75 bps for a fourth consecutive meeting in November.
Futures prices suggest a 90% chance the Fed will deliver another 75 bps hike, up from 86% before the data.
Italy's 10-year bond yield was last up 20 bps to 4.701%, edging closer to last week's nine-year high above 4.9%.
The gap between Italian and German 10-year yields widened after the U.S. jobs data to as high as 251 bps. It last stood at 249 bps.
Italian yields - and their levels compared to those on German bonds - are closely watched as an indicator of the pressures facing Europe's weaker economies.
"In general, if U.S. yields move in some direction because of U.S. data, it's likely that European yields do the same," said Davide Oneglia, chief European economist at consultancy TS Lombard.
"You would expect the European Central Bank (ECB) to be somewhat bound in terms of monetary policy to what the Federal Reserve does."
Yields on Italian government bonds rose earlier this week after the ECB said it had shrunk holdings of the country's debt under its Pandemic Emergency Purchase Programme (PEPP) in the last two months, likely as a result of bonds maturing and not being replaced.
There had been a 9.76 billion euro ($9.50 billion) increase in the previous two months, when the ECB announced plans to use PEPP reinvestments to prevent bond yields and spreads from rising too far or too fast in the weakest countries.
($1 = 1.0274 euros)
(Reporting by Samuel Indyk and Harry Robertson; editing by Kirsten Donovan and Toby Chopra)