German bond yields set for biggest monthly fall since June 2016 Brexit vote

* German Bund yields down over 20 bps in March

* Biggest monthly falls since June 2016

* EZ bond yields higher on U.S.-China trade talk hopes

* But key day for Brexit prevents deep selloff

* Euro zone periphery govt bond yields

LONDON, March 29 (Reuters) - German and French government bond yields were poised on Friday for their biggest monthly falls since June 2016, ending a month where heightened anxiety about global growth prospects have sparked a flood into fixed income globally.

Ten-year bond yields across the single currency bloc were marginally higher in early trade, reflecting a firmer tone in world stock markets on hopes that Washington and Beijing are making progress in trade talks.

Still, borrowing costs in Germany, the Netherlands and France remained close to 2-1/2 year lows hit this week as signs that the European Central Bank is considering ways to limit the impact of negative interest rates on banks triggered fresh bond buying.

“We have moved a lot in the last two weeks so there is a bit of pause for now,” said Pooja Kumra, European rates strategist, TD Securities.

German and French 10-year bond yields are down around 25 basis points each this month, set for their biggest monthly falls since June 2016 -- when Britain voted in favour of leaving the European Union, rattling world markets.

Early on Friday, the German 10-year Bund yield was marginally higher on the day at minus 0.07 percent, holding within sight of 2-1/2 year lows hit this week.

Having dropped below zero percent for the first time since 2016 a week ago, Bund yields were also set to end the quarter down around 30 bps in their biggest quarterly fall in three years.

Data on Friday showed French inflation fell in March more than expected to hit its lowest point in more than a year, reinforcing a view of a benign inflation outlook.

Wouter Sturkenboom, chief investment strategist for EMEA at Northern Trust, said he expected bond markets to stabilise from here.

“The growth outlook for the euro zone is not as bad as markets are anticipating and we think the Bund yield also reflects some safe-haven element,” he said.

The sharp falls in the euro zone have been matched in equal measure by peers across the world - U.S. and Australian 10-year bond yields are down over 30 basis points each this month, reflecting concern about recession risks facing the world economy as well as uncertainty surrounding Brexit.

Friday was shaping up as a potentially key day for Brexit.

British lawmakers will vote on Prime Minister Theresa May’s withdrawal agreement at a special sitting but not on the framework for future relations with the EU she negotiated at the same time.

“The move in yields has happened everywhere and they are extreme moves, so how far they go now could depend on the data and how Brexit develops,” said Kumra at TD Securities.

Reporting by Dhara Ranasinghe; Editing by Alison Williams