Italy bonds weather Berlusconi ruling as no immediate crisis seen
* Italy debt outperforms German Bunds before U.S. jobs data
* Court to review Berlusconi ban from public life
* Imminent threat to Italy coalition seen limited
LONDON, Aug 2 (Reuters) - Italian bonds rose on Friday, with investors seeing no immediate threat to the ruling coalition after the supreme court upheld former premier Silvio Berlusconi's conviction for tax fraud.
Market reaction to the Berlusconi verdict was also muted as most investors focused on U.S. jobs figures due later in the day. Strong numbers could bolster expectations Federal Reserve will start scaling back its stimulus programme later this year.
Italian bonds outperformed German Bunds, which tracked U.S. Treasuries lower before the U.S. labour report, expected to show 184,000 jobs were created in July compared with 195,000 in June.
Signs that recovery in the world's biggest economy could be gaining traction, as well as indications the euro zone's weaker economies are picking up, spurred an investor hunt for higher returns in lower-rated debt, including Italy's.
While upholding Berlusconi's jail term, judges ordered a review by a Milan court of a five-year ban from public office, enabling him to remain a senator and leader of his centre-right People of Freedom Party (PDL) for the moment.
"The market was very much prepared for the uncertainty surrounding this verdict and so far there has been no sign that the government, which is already weak, is facing any imminent threat," said Chris Clark, an analyst at ICAP.
Italian 10-year yields fell 3 basis points to 4.34 percent and equivalent Spanish yields were down by a similar amount at 4.56 percent. The premium investors demand to hold Italian bonds over higher-rated German Bunds fell 6 bps on the day to 264 bps, its lowest since the beginning of June.
Some market participants, such as Matthias Thiel, a market strategist at Hamburg-based M.M. Warburg, which has 44.4 billion euros ($56.77 billion) under management remained "clearly overweight" Italian and Spanish equities and bonds despite the ruling.
"Berlusconi is a factor but for us at the moment it's more important that there are early signs of Italy gaining economic momentum," he said.
The scope for further gains in lower-rated euro zone bonds hinged on the U.S. jobs data due at 1230 GMT. Some saw a figure above 200,000 spurring demand for riskier assets.
Bund futures were down 42 ticks at 141.97 with German 10-year yields 4 bps up at 1.71 percent.
"The constantly low initial jobless claims and the robust creation of 200,000 jobs reported recently by ADP, which is well above the expectations, also signal strong growth in employment in the official labor market report," Helaba Landesbank Hessen-Thueringen strategists said in a note.