(Updates at 1030 GMT)

By Harry Robertson

LONDON, Aug 9 (Reuters) -

Euro zone bond yields were on track for a weekly increase on

Friday, after a highly volatile few days, in a sign of the calm

that has descended on markets in the wake of reassuring economic

data.

Germany's 10-year bond yield, the benchmark

for the euro zone, slipped 3 basis points in early trading to

2.234%, but was poised for a 7 bps rise on the week. Yields move

inversely to prices.

The yield had tumbled on Monday morning in Europe as

investors flocked to the safety of government bonds, spooked by

the biggest one-day fall in Japanese stocks since 1987 and a

slide in European equities and U.S. futures.

A combination of a slowdown in the U.S. jobs market in July,

a dramatic rally in the Japanese yen, and doubts about the

benefits of artificial intelligence has caught investors off

guard and caused volatility in financial markets to spike.

Yet some stronger-than-expected U.S. economic data - a

services sector survey on Monday and weekly jobless claims on

Thursday - helped allay worries about a recession, boosting

stocks and pushing bond yields back higher.

"Fears of the U.S. economic juggernaut crashing into

recession would appear to be somewhat overblown," said Christian

Reicherter, an analyst at DZ Bank.

He said a lack of economic data or speeches by central

bankers on Friday may give traders "some time to catch their

breath in the wake of the turbulent past few days".

Germany's two-year bond yield was last down 1 bp

at 2.397% and was set to end the week 6 bps higher.

Italy's 10-year yield was down 6 bps at 3.647%

and was on track to end the week up 2 bps. The gap between

German and Italian borrowing costs stood 4 bps

lower than on Monday at 141 bps.

Euro zone yields remain well below the multi-month highs

touched in July, with a cooling of U.S. and European inflation,

and a softening of the American labour market, bolstering

expectations for interest rate cuts.

Investors are now expecting the U.S. Federal Reserve to cut

rates by 100 bps this year, up from 85 bps a week ago but down

from as much as 125 bps on Monday.

The size and importance of the U.S. economy and dollar means

a change in rate cut pricing for the Fed typically influences

expectations about other central banks.

"With growth seemingly cooling down, the direction of rates

is lower, but the potential pace of central banks' easing

remains uncertain," said Benjamin Schroeder, senior rates

strategist at ING.

"Inflation is sticky, and economic numbers, notably in the

eurozone, paint a mixed picture," he said.

Traders on Friday were pricing in around 65 bps of further

cuts from the ECB this year, up from around 55 bps a week ago.