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Bond Markets Yields fall as Nasdaq dives again

LONDON, April 4 (Reuters) - Euro zone and U.S. Treasury bond yields fell in late Tuesday trade after receiving a fillip from the U.S. Nasdaq index which plunged heavily for the second day running.

By 1630 GMT the technology-laced Nasdaq index . had tumbled 7.73 percent, adding to Monday's decline of 7.64 percent.

Euro zone and U.S. bond yields had been steady for much of the session with the market in a consolidative mood after a rally on Monday and ahead of Friday's U.S. payrolls data. But the prospect of further Nasdaq losses led to yields dropping sharply once again.

The agenda for British government bonds (gilts) was somewhat different with yields rising as nerves grew ahead of the Bank of England's decision on interest rates on Thursday.

Nick Stamenkovic, senior bond strategist at IDEAglobal.com, said equity markets will continue to drive euro zone and U.S. government bond markets until Friday's payroll report.

Investors have been turning their backs on technology stocks in favour of more established "old economy" stocks and to some extent heading for the safety of government bonds.

The yield on the 10-year U.S. Treasury note was 6.6 basis points lower on the day at 5.899 percent while the 30-year Treasury bond yield was down 4.0 basis points at 5.772 percent, a fresh 10-month low.

Treasury prices were earlier given a lift after dealers said the Federal Reserve Bank of New York was buying coupons and bills for a large customer which market players speculated could be the Bank of Japan.

In Europe, major stock markets looked set to close in positive territory, with Frankfurt and Paris both up more than one percent.

Bond markets were however taking their cue from the Nasdaq.

The yield on the benchmark German 10-year Bund was down 4.5 basis point at 5.153 percent while the June Bund future was up 0.34 at 105.97.

"We're continuing to look at the performance of the U.S. equity market as this will provide a lead for European equities tomorrow," said Stamenkovic.

The European Union statistics agency said unemployment in the euro zone was unchanged at 9.5 percent in February after January's rate was revised down from 9.6 percent.

However, the data had no impact as several countries have already reported February data and Germany will announce the March figure on Wednesday.

In gilts, comments by Bank of England governor Eddie George earlier in the session in which he ruled out cutting rates to bring sterling down, added to tension ahead of Thursday's interest rate decision.

Gilts underperformed Bunds and Treasuries with the 10-year bond yield rising 3.6 percent to 5.23 percent.

"We're anticpating a 25 basis point rate hike but I don't think that is fully priced in so the short-end is looking pretty vulnerable," Stamenkovic said.-Reuters