UPDATE 1-Euro zone yields dip as trade worries resurface; U.S. jobs data in focus

focus@

* German 10-year bond yields head back towards 0.50 pct

* Trump seeks more tariff options against China

* U.S. jobs report due later on Friday

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices, adds in ECB and Italy)

LONDON, April 6 (Reuters) - Euro zone government bond yields dipped as a trade dispute between the U.S. and China flared up again, and they may fall further if U.S. jobs data due later on Friday fall short of expectations.

Government bonds in major developed economies, considered a safe investment in uncertain times, have seesawed this week as U.S. President Donald Trump wrangles with Beijing over tariffs, raising prospects of a full-blown trade war between the world's two largest economies.

An apparent easing in tensions earlier in the week pushed euro zone yields higher as investors shed safe-haven assets. That move reversed on Friday after Trump directed U.S. trade officials to identify options for tariffs on $100 billion more of Chinese imports.

European Central Bank board member Benoit Coeure said that fears of a trade war are already raising borrowing costs and pushing down share prices, and have "contributed to tighter financial conditions".

The yield on 10-year German government debt, the euro zone benchmark, dipped 1 basis point in early trade to 0.51 percent, erasing much of Thursday's rise.

"Yesterday, yields were rising on hopes that China and the U.S. will find a solution, but with the change in sentiment, yields are retracting," DZ Bank strategist Sebastian Fellechner said. "But the bigger picture is that the market is pricing in trade tensions, if you look at where Bund yields are now."

Persistently low inflation and a scaling back of expectations for European economic growth are also fuelling demand for euro zone bonds.

German 10-year yields are about 30 basis points below the high they reached in February, and most other euro zone yields are similarly below equivalent highs, hit on expectations the European Central Bank would tighten policy.

The Bank of Italy urged the ECB on Friday to be cautious in tightening monetary policy, warning of the risks of a sudden end to asset buying or sharp rises in interest rates.

U.S. employment figures due later could change the short-term trajectory of the market, DZ Bank's Fellechner said. Expectations are that 193,000 jobs were added, according to a Reuters poll.

Any reading above that could strengthen the case for rate hikes and push U.S. Treasury yields, as well as European equivalents, higher.

The yield on 10-year U.S. Treasuries was 1 bps lower at 2.82 percent in European trade, and the gap over the German equivalent was 230 bps, just a few basis points below the one-year high in March.

(Reporting by Abhinav Ramnarayan; additional reporting by Fanny Potkin, editing by Larry King)