German bond yields hit five-week low on muted U.S. wages growth

* US payrolls push down U.S, German yields

* Euro zone yields lower across the board

* U.S. tariffs on Chinese goods take effect

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Rewrites to reflect moves after U.S. payroll data)

By Dhara Ranasinghe and Abhinav Ramnarayan

LONDON, July 6 (Reuters) - Euro zone government bond yields gave up their gains after payroll data in the United States showed wage growth was lower than expected, thereby undermining inflation expectations in the world's biggest economy.

U.S. 10-year Treasury yields fell to their lowest levels in five weeks and the Treasury yield curve flattened to its tightest levels since 2007 after jobs data for June showed that wage pressures were below economists' expectations.

The debt of the world's largest economies tend to track one another as many investors switch between them. Accordingly many high-grade euro zone bond yields also dropped on the day and Germany's 10-year government bond yield, the benchmark for the bloc, hit a five-week low of 0.281 percent.

"If you look at the unemployment rate and the hourly earnings you could conclude there's a bit more slack in the market than previously thought," said Investec (LSE: INVP.L - news) economist Ryan Djajasaputra.

"But really it's a mixed picture. We are still looking two hikes this year, one in September and one in December."

Most other euro zone bond yields were 1-2 bps lower on the day.

Yields on both German and U.S. debt have been pushed lower in recent weeks on worries over a potential trade war between the U.S. and other major countries.

U.S. tariffs on $34 billion in Chinese imports took effect on Friday. The market appeared to talk it calmly at the open - with European stocks actually rallying, but they returned to trade flat due to gains in the euro and falls in the dollar after the non-farm payroll report.

The outlook for record-low interest rates remaining in place for some time and underlying concerns that a global trade spat will harm economic growth continue to support demand for bonds, especially those from top-rated Germany, analysts said.

In fact, German yields were set for their fourth straight week of declines.

Peripheral bond yields meanwhile fell 2-3 bps led by Italy .

(Reporting by Dhara Ranasinghe Editing by Keith Weir)