By Marius Zaharia
LONDON, Oct 23 (Reuters) - German Bunds hit three-week highson Wednesday, extending gains on the back of the previoussession's below-forecast U.S. jobs report, which raisedexpectations the Federal Reserve could delay trimming stimulus.
The data showed the momentum in the U.S. economic recoverywas weaker than expected even before October's 16-day governmentshutdown caused by political wrangling over the budget and thepublic borrowing limit.
A last-minute deal to lift the debt ceiling a week agoreopened the government, but provided funds only until Jan. 15,raising the prospect of another budget battle early next year.
The political uncertainty is expected to have a detrimentalimpact on the economy and therefore prompt the Fed to hold offsomewhat on plans to scale back its $85 billion monthlypurchases of Treasuries and mortgage-backed securities.
Before the shutdown, expectations for when the Fed mightstart to rein in bond-buying tilted towards the end of the year,but have since been pushed back to early 2014. The Septemberjobs report has cemented those expectations.
"The tapering fear is being pushed back," one trader said.
Bund futures were last 11 ticks higher at 140.65,having hit a three-week high of 140.71 minutes after the open.They have risen almost two full points in the past week.
Cash 10-year German yields fell to a two-weeklow of 1.784 percent.
"The bond market momentum has picked up," said Jan vonGerich, chief analyst at Nordea in Helsinki. "We're not even atSeptember lows so German yields can fall further today."
The September low in Bund yields was 1.694 percent.
October jobs data, due on Nov. 8, may give markets more ofan idea about the broader impact of the political uncertainty onthe U.S. economy, but until then, the focus may turn back toEurope.
Euro zone manufacturing and services PMIs are due onThursday and the German Ifo business sentiment survey is due onFriday.
Von Gerich said neither was likely to knock Bunds lower.
Weak numbers would suggest the euro zone recovery was losingmomentum as well, enhancing the safe haven appeal of top-ratedGerman debt. But strong numbers might strengthen the eurocurrency even further, raising the risk of further policy easingby the European Central Bank.
"I would have thought a strong euro would bring inflationeven lower, raising chances for a policy reaction," the tradersaid. "It's a potential supporting factor for Bunds."
The euro is trading at two-year highs against the dollar, while euro zone inflation was 1.1 percent in September,way below the ECB's target of close to 2 percent.
Other euro zone bonds were also slightly firmer.
- government shutdown