Euro zone bond yields fall from 6-week high

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Eyes on stocks sell off, Fed policy outlook

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ECB likely to maintain current interest rates for now

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U.S. jobs data shows employment growth slowdown, not collapse

By Samuel Indyk

LONDON, Nov 21 (Reuters) - Germany's 10-year bond yield retreated from a six-week high on Friday, with investors remaining focused on the sell-off in global equities and expectations for Federal Reserve policy.

Among euro-denominated assets, investors often turn to German bonds when global risk sentiment sours, given the country's very low default risk and high bond market liquidity.

Bond yields move inversely with prices.

Stocks in Europe opened with steep losses, although U.S. futures were recovering slightly after a sharp reversal on Thursday that saw the S&P 500 close lower by 1.5%.

Germany's 10-year bond yield, the benchmark for the euro zone, was down 2.5 basis points (bps) at 2.695%, having hit its highest in six weeks on Thursday at 2.741%.

On Friday, investors were watching the euro zone PMIs for any indication whether business activity in the bloc is improving at the end of the year, after a strong increase last month.

"Consensus is looking for marginal changes only," said Michiel Tukker, ING senior rates strategist.

"As such, this would support a picture of slow but still resilient growth."

EYES ON STOCKS, FED

With the European Central Bank looking likely to hold interest rates for the foreseeable future, investors in euro zone bonds were turning their attention elsewhere, including the outlook for Fed policy.

Fed officials have generally signalled they are comfortable with keeping interest rates on hold at the December meeting, given still sticky inflation and a dearth of data due to the government shutdown. September's delayed U.S. jobs data, released on Thursday, would likely have done little to swing policymakers either way, as job growth accelerated but the unemployment rate ticked up.

"As a whole, while the report is largely history already, in the absence of newer data, it continues to point to only a slowdown in employment growth, not a collapse, and is not screaming for more Fed rate cuts either," said Jan von Gerich, chief analyst at Nordea.

Markets are now pricing about a 25% chance of a cut next month, down from about 90% just a couple of weeks ago.

Shorter-end yields, which are more sensitive to changes in interest rate policy, were also falling slightly on Friday.

Germany's two-year yield was down 2 bps at 2.004%. (Reporting by Samuel Indyk; Editing by Andrew Cawthorne)