Updates prices and records, adds Bank of England in paragraphs 7-8

By David Milliken

LONDON, April 10 (Reuters) - British 30-year government bond yields retreated sharply on Thursday as tensions in fixed income markets eased in response to U.S. President Donald Trump pausing the implementation of many trade tariffs.

Thirty-year gilt yields GB30YT=RR, which hit their highest since May 1998 at 5.649% on Wednesday - when they closed 25.2 basis points higher - were down by 18 basis points at 5.417% in late trade, the biggest one-day fall in yields since February 2023.

Yields on benchmark 10-year gilts GB10YT=RR were 16 bps lower at 4.628%.

The previous day's surge in gilt yields represented the heaviest day of losses for British bondholders since the aftermath of former Prime Minister Liz Truss's mini-budget in October 2022.

This time, the bond market worries sprang from the U.S. Treasuries market.

"Volatility will remain high but the last few days have again shown the power of markets. Hence, we should have a floor for equities and a ceiling for rates," said Mohit Kumar, chief financial economist for Europe at investment bank Jefferies.

Bank of England Deputy Governor Sarah Breeden warned at an MNI Livestreamed Connect event that vulnerabilities remained and said bond market functioning had come under pressure on Wednesday.

Due to the turbulent conditions, the BoE postponed a 600 million pound ($776 million) sale of gilts with a maturity of more than 20 years that had been due to take place on April 14.

Britain's FTSE-100 share index .FTSE was 3.2% higher on Thursday, reversing Wednesday's fall.

Short-dated two-year gilt yields GB2YT=RR were around 8 bps lower on Thursday at 3.921%. Investors judged the Bank of England was likely to cut interest rates next month. But the chance of rates staying on hold was priced at around 11%, compared with effectively zero on Wednesday.

Markets were pricing in roughly 90 bps of BoE cuts over the rest of this year, up from 83 bps on Wednesday and much higher than around 50 bps before Trump last week announced his sweeping tariff plans that raised fears of a global economic slowdown.

($1 = 0.7734 pounds)

(Additional reporting by William Schomberg; Editing by Catarina Demony and Alex Richardson)

((david.milliken@thomsonreuters.com; +44 20 7513 4034;))