* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds U.S. data, updates prices) MILAN, Jan 8 (Reuters) - Euro zone government bond yields were down on Friday as expectations of European Central Bank support and worries about the economic recovery in Europe outweighed the impact of rising yields in U.S. Treasuries. U.S. bond borrowing costs could be headed still higher after reaching 1.0% this week on expectations that a Democrat-controlled Congress will have the clout to pass more fiscal stimulus, bolstering economic activity and debt issuance. A recent rise in yields and inflation expectations has boosted the prospects of the U.S. Federal Reserve’s new monetary policy, and they will be buoyed further if a Democrat-led Congress rolls out more spending. Germany’s benchmark 10-year Bund yield fell 1 basis point to -0.524%. “European government bonds are not immune to the bearish U.S. steepening, but the surge in the 30-year Treasury-Bund spread to above 200 basis points underlines the relative strength,” Commerzbank analysts said in a research note. Italy’s 10-year government bond yields dropped 4 basis points after hitting their lowest level since mid-December at 0.485%. The spread between German and Italian 10-year bond yields tightened to around 100 basis points, its narrowest since 2016. Investors shrugged off an ongoing clash between Prime Minister Giuseppe Conte and Italia Viva head Matteo Renzi, which has brought Italian political uncertainty to the fore. “With the ECB remaining strongly supportive, we do not expect a significant increase in nominal yields from the current levels in the coming months,” Unicredit analysts said. “That said, going forward, improving market sentiment is likely to drive eurozone yields, especially the real component, moderately higher,” they added. U.S. Treasury borrowing costs continued to rise, with the benchmark 10-year yield up 3 basis points at 1.1017%, despite data showing that the U.S. economy had shed jobs in December for the first time in eight months. Analysts argued that numbers were weak, but much better-than-expected wage growth took some of the sting out of the headline job loss. Many were also looking ahead to prospects that President-elect Joe Biden’s agenda, helped by control of both houses of Congress, will boost the U.S. economy. “Although historically narrow margins in Congress will restrain some of the more sweeping elements of the Biden agenda, this development will have substantial implications for the economic outlook, particularly in the near term,” a Deutsche Bank research note said.