* US payrolls rise, but wage growth modest
* Poll shows Socialists closing gap on Merkel's bloc
* Analysts say could result in more fiscal pledges
* French bonds hurt by political risk
* Euro zone periphery yields tmsnrt.rs/2ii2Bqr
(Updates with price)
By John Geddie and Dhara Ranasinghe
LONDON, Feb 3 Germany's benchmark 10-year Bund
yield fell to a 1-1/2 week low on Friday, pushed down by a
decline in its U.S. peers after tepid wage growth data took the
pressure off the U.S. Federal Reserve to lift interest rates
U.S. nonfarm payrolls rose by 227,000 jobs in December, more
than expected and the largest gain in four months. But the
unemployment rate nudged up to 4.8 percent and wages increased
modestly, suggesting inflationary pressures from the jobs market
may not be as great as some investors have thought.
"The data suggests the jobs market is not producing
significant wage pressures yet, which means the pressure is off
the Fed to hike rates," said Chris Scicluna, the head of
economic research at Daiwa Securities.
Germany's benchmark 10-year Bund yield reversed earlier
rises to fall after the data. It dipped 1.5 basis points to
0.406 percent, its lowest level since Jan. 25.
German bond yields, alongside euro zone peers, had opened
the day higher after a poll showed Germany's election race
tightening, which could signal more fiscal stimulus in the
bloc's biggest economy and less support for right-wing
Analysts said the suggestion of more pressure from the left
made it more likely politicians in Germany - one of the main
proponents of the austerity that some argue has held back
economic recovery - may shift towards fiscal stimulus, which
would boost growth and inflation.
Higher inflation erodes the value of bonds, while better
growth prospects encourage investors to shift into riskier
assets like equities.
"If we believe there is a serious fight, then the only
outcome is a looser fiscal policy in Germany because either a
new left-leaning government is going to spend money or Merkel
has to promise a lot of sweeties to the electorate to stay in
power," said Peter Schaffrik, RBC's global macro strategist.
Germany's election will not be held until September, and
investors will have to navigate knife-edge votes in the
Netherlands, France and possibly Italy before then. But some
analysts said signals that Germany's anti-establishment AFD was
losing support had provided optimism for markets.
Most other euro zone yields pared back their rises after the
U.S. payrolls data, but French bond yields remained 4 bps higher
on the day at 1.08 percent, while the
French/German 10-year yield gap pushed out to 67 bps - its
widest in 3 years.
Analysts said news on Friday that a French soldier had
wounded a machete-wielding man as he tried to enter the Louvre
museum in Paris could strengthen the position of the far-right's
Marine Le Pen in looming presidential elections, keeping
investors uneasy about rising political risks in France.
Reuters Live Markets blog on European and UK stock markets
(Editing by Andrew Heavens)