(Recasts to reflect new landmark in Bund, U.S. payroll data) LONDON, Sept 3 (Reuters) - German government borrowing costs hit their highest level since mid-July on Friday as euro zone business surveys signposted a rapidly recovering economy and U.S. Treasury yields rose after the release of monthly employment data. Purchasing Managers’ Index (PMI) surveys for the services sector in Italy, France, Germany and the euro zone, released earlier on Friday, all pointed to healthy growth. Yields rose further when U.S. non-farm payroll data showed a big miss in new jobs added but revealed a sharp increase in wages and a continued drop in the unemployment rate. “There was a much higher than expected wages increase of 4.3% versus 3.9% year-on-year, which pushes against the central bank narrative that current inflation is transitory,” said Mike Owens, global sales trader at Saxo Markets. Euro zone government bond yields had risen in recent weeks, with inflation and economic indicators in the single currency bloc beating expectations. That’s leading investors to bet the ECB will have to begin the debate on ending the pandemic emergency purchasing programme (PEPP), possibly even at next Thursday’s policy meeting. “The service sector has remained resilient in the face of a resurgence in Covid-19 cases,” ING analysts told clients. German 30-year bond yields rose 2.3 bps to a six-week high of 0.14%, tracking long-dated U.S. Treasury yields , which were nearly 5 bps higher at 1.95%. The gap between Germany’s 10- and 30-year bond yields hit 50.5 basis points on Friday, the widest level since early July. Long-dated bonds are seen as beneficiaries of ECB largesse and the hunt for yield, and they tend to suffer the most on speculation of monetary policy tightening. German 10-year Bund yields also rose 3 bps on the day to -0.352%, up 2.5 bps on the day and some 17 bps above the six-month lows touched last month. Greek government bonds have been hit particularly hard by the PEPP speculation, given non-investment-grade Greece was included in ECB purchases for the first time under PEPP. Greece’s 10-year borrowing costs have risen nearly 20 basis points from August lows. They rose 1.5 bps to a near two-month high at 0.764% on Friday. Markets will now focus on next Thursday’s ECB meeting, given the U.S. Federal Reserve policymakers remain highly cautious on the subject of tapering, the ING analysts said. Indeed, U.S. 10-year Treasury yields were only marginally higher at 1.302% on Friday.