Updates at 1255 GMT

By Alun John

LONDON, Nov 1 (Reuters) -U.S. government bond yields fell and stock futures edged up on Friday after data showed the U.S. economy barely added any jobs in October, though the numbers was heavily disrupted by industrial action and hurricanes.

Nonfarm payrolls increased by 12,000 jobs last month after surging by a downwardly revised 223,000 in September, the Labor Department's Bureau of Labor Statistics said.

The benchmark 10-year Treasury yield was 4.22%, down 6 basis points on the day, moving away from its near four month high of 4.34% hit earlier in the week. US10YT=RR

The two-year yield, which is more sensitive to moves in short term rate expectations, dropped 10 bps to 4.07% as the data put pay to the small possibility that the Federal Reserve might keep rates on hold at its meeting next week. US/ US2YT=RR

The muted reaction to the plunge in payrolls was due to the data being disrupted by two hurricanes and a total 41,400 new workers were strike in the relevant period.

Reassurance was also provided by the unemployment rate holding steady at 4.1%, offering assurance that the labour market remained on solid footing ahead of Tuesday's presidential election.

"The employment situation is opaque. The hurricane effects are hard to quantify, so most people will see these numbers and just ignore them," said Brian Jacobsen, chief economist at Annex Wealth Management

"The Fed will likely ignore this release and hopefully just stay the course they laid out in their last summary of economic projections, which would mean a 25 basis point cut in November and another in December."

U.S. shares were set to open higher with Nasdaq futures up 0.6% and S&P 500 futures up 0.5% though both were already trading in positive territory before the data, due in part to an over 6% jump in Amazon AMZN.O in premarket trading after its results. .N

The focus will now entirely turn to the presidential election, with polls pointing to a knife-edge race, though investors have been putting on trades betting Republican candidate Donald Trump could be president again, a factor in the recent rise in Treasury yields.

EUROPE MIRRORS

European markets echoed their U.S. peers in the aftermath of the payrolls data, with the broad Stoxx 600 index up 0.9% .STOXX and the benchmark 10-year German bund yield DE10YT=RR 4 bps lower at 2.35%. .EU GVD/EUR

The U.S. data also provided some relief for Britain's under fire government bonds, with the 10-year gilt yield building on an earlier fall, last down 6 bps at 4.39%. GB10YT=RR GB/

It is still set for a weekly rise of 16 bps driven by the new Labour government's tax-and-spend budget igniting concerns over inflation and growth, though it has failed to cause volatility on the level of 2022's budget that brought down Liz Truss as prime minister.

The pound has also came under pressure in the past two days, but rose 0.5% on the dollar on Friday to $1.2962, GBP=D3 partly a result of steadying British markets and partly a result of some dollar weakness in the light of the payrolls print. GBP/

The euro was up 0.1% on the U.S. currency at $1.0896 EUR=EBS and the yen recovered from earlier weakness and was last flat on the day at 151.9 per dollar. JPY=EBS FRX/

Earlier, a private sector survey in China showed factory activity returned to expansion in October.

"The 50.1 level is the smallest possible expansion for the PMI but nonetheless bucks expectations for continued contraction," said Lynn Song, chief economist for Greater China at ING.

"Moving forward we'll need to see if the stimulus rollout can lead to a recovery of domestic demand to offset potentially softer external demand picture, which could be even less favourable if we do see a Trump victory next week and a subsequent escalation of tariffs."

Oil extended its rally to a third day, with Brent prices LCOc1 up 2.2% to $74.41 a barrel, on reports that Iran was preparing a retaliatory strike on Israel from Iraqi territory in the coming days. O/R

Gold prices XAU= climbed 0.4% to $2,754 an ounce. GOL/

Reporting by Stella Qiu in Sydney and Alun John in London; Editing by William Mallard, Sam Holmes and Daren Butler

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