* German 10-year bond yields head back under 0.50 pct
* Trump threatens additional tariffs on $100 billion of Chinese goods
* China ready to make "fierce counter strike" - commerce ministry
* U.S. jobs gains smallest in 6 months
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices, adds in jobs data, Trump)
LONDON, April 6 (Reuters) - Euro zone government bond yields dipped as a trade dispute between the U.S. and China flared up again.
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.
Beijing warned on Friday it was fully prepared to respond with a "fierce counter strike" of fresh trade measures if the United States followed through, adding that no negotiations were likely in the current circumstances.
The news benefited euro zone borrowing costs, which dropped 2-4 basis points on the day.
The yield on 10-year German government debt, the euro zone benchmark, dipped 2.7 basis points in late trades to 0.494 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."
European Central Bank board member Benoit Coeure said on Friday that fears of a trade war triggered by U.S tariffs are already raising borrowing costs and pushing down share prices, and have "contributed to tighter financial conditions" .
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. Elsewhere, U.S. Treasury prices gained on Friday after employers added fewer jobs than expected in March.
The yield on 10-year U.S. Treasuries was 5.5 bps lower at 2.7789 percent in European trade, and the gap over the German equivalent was 228 bps, just a few basis points below the one-year high in March.
The U.S. economy created the fewest jobs in six months in March as the boost from mild temperatures faded, but a pickup in wage gains pointed to a tightening labour market.
(Reporting by Abhinav Ramnarayan; Additional reporting by Fanny Potkin; Editing by Andrew Bolton)