Bund yields set for biggest daily rise in two months after US data

By Stefano Rebaudo

May 2 (Reuters) - Euro area benchmark Bund yields were on track for their biggest daily rise since early March, tracking moves from U.S. Treasuries after strong jobs data.

Borrowing costs had risen early in the session as investors scaled back bets on European Central Bank rate cuts amid signs of easing trade tensions between the United States and China.

Germany's 10-year yield, the benchmark for the euro area, rose 8 basis points to 2.52%.

China's Commerce Ministry said Beijing was "evaluating" an offer to hold talks with Washington over U.S. tariffs, signalling a potential de-escalation in the trade war, which has roiled markets.

U.S. Treasury yields rose and traders pared back bets that the Federal Reserve will cut rates in June.

Barclays delayed its expectations for the Fed rate cut from June to July, arguing the central bank should benefit from resolving uncertainty about tariffs and fiscal policy.

"Hiring and firing both remain subdued so we remain somewhat range-bound for now in the jobs market, but the risk is for weaker numbers in May and June as the tariff reaction from business materialises," said James Knightley, chief international economist U.S. at ING.

Money markets priced in an ECB deposit facility rate of 1.65% in December, which implies 60 bps of rate cuts from the current 2.25%, compared with 1.6% the day before. They also fully price in a 25 bps cut in June and two cuts by September.

Investors sharply increased bets on the ECB easing after the mid-April meeting, when the bank suggested it was ready to offset the adverse impact of tariffs with rate cuts. They scaled back these bets following signs that potential tariffs could be less severe than feared.

Euro zone inflation held steady after national data released this week provided a mixed backdrop: German inflation eased, figures from France showed a higher than expected rise, while Italy recorded an acceleration in core inflation.

Germany's policy-rate-sensitive two-year yield rose 7 bps to 1.77%.

"April's rise in services inflation is unlikely to worry ECB officials too much as it was probably driven mainly by Easter timing effects," said Franziska Palmas, senior European economist at Capital Economics.

"We think services inflation will start falling again in the coming months and that U.S. tariffs will prove disinflationary for the euro zone," she said.

Italy's 10-year yield was up 6 bps at 3.63%.

(Reporting by Stefano Rebaudo; Editing by Emelia Sithole-Matarise, Tomasz Janowski, Peter Graff)