April 7, 2017 / 7:03 AM / 3 months ago

UPDATE 4-U.S. data and Syria strikes drive Bund yields to 5-week lows

3 Min Read

* Air strikes in Syria prompt global demand for safe assets

* Euro zone government bond yields broadly lower

* Greece and creditors agree on key elements of reforms

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Recasts after U.S. data, updates prices)

By Abhinav Ramnarayan and John Geddie

LONDON, April 7 (Reuters) - Investors sought the safety of euro zone bonds on Friday sending yields to multi-week lows after U.S. air strikes in Syria raised diplomatic tensions and weak U.S. data cast doubt over the strength of the recovery in the world's largest economy.

Benchmark German Bund yields fell immediately at the start of European trading, following an earlier tumble in U.S. equivalents to four-month lows, as an escalation of the U.S. military role in Syria drew sharp criticism from Russia.

Russian Prime Minister Dmitry Medvedev said on Friday the missile strikes on a Syrian airbase were one step away from clashing with the Russian military.

German yields, which move inversely to the cash price, fell further to five-week lows after data showed U.S. job growth slowing sharply in March, well below expectations.

"Safe-haven flows are always affected by political events, and when it affects countries where the U.S. and Russia are interested, then investors become even more nervous," DZ Bank strategist Daniel Lenz said.

Seeding further nervousness in world markets, a truck drove into a crowd on a shopping street in the Swedish capital Stockholm in what the country's prime minister said appeared to be a terrorist attack.

German 10-year yields fell as much as 4 basis points to a five-week low of 0.22 percent, and were trading around 0.23 percent as markets came to a close.

Most other euro zone bond yields were lower on the day.

Elsewhere, Greece and its euro zone creditors agreed on major elements of reforms needed to unlock new loans, with a total of 2 percent of GDP of measures to be implemented in 2019 and 2020, the head of euro zone finance ministers said.

The yield on Greece's short-dated bonds maturing in April 2019 dropped 25 bps to 7.69 percent.

Later on Friday, ratings agency S&P Global is to review France's credit rating, now AA with a stable outlook.

"I am not expecting any change, but there may be some hint on what S&P could do if (Marine) Le Pen wins the presidential elections, what implications it could have regarding the rating," said Lenz.

Far-right leader Marine Le Pen has promised to try to take France out of the single currency if she wins the two-round presidential elections scheduled for April 23 and May 7.

The yield on France's 10-year government bond fell as much as 3 bps to a one-month low of 0.87 percent. (Additional reporting by Helen Reid; Editing by Jeremy Gaunt)

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