* German 10-year Bund yield falls to new six-month low
* French yields fall to lowest since August
* Oil tumbles after OPEC fails to reach decision
* European stocks down more than 3 percent
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates throughout)
By Dhara Ranasinghe
LONDON, Dec 6 (Reuters) - Yields on top-rated German government bonds tumbled to new six-month lows on Thursday, as a global equity selloff and a renewed slide in oil prices sent investors scurrying for safe-haven assets.
U.S. 10-year yields also slipped to three-month lows as traders scaled back expectations on the number of rate hikes the Federal Reserve might be able to deliver amid weakening economic data and trade conflict.
In contrast, Italian bonds sold off and the gap between 10-year Italian and German bond yields widened around 20 basis points, as higher-risk assets weakened and sources said Italy’s ruling League party was resisting cuts to the 2019 budget deficit.
The dash for safety was triggered by the arrest of a top executive of Chinese tech giant Huawei which renewed concern about a U.S.-China trade conflict
World stocks fell 2.5 percent. U.S. equities ceded all their gains for the year and a pan-European European equity index suffered a 3.3 percent loss.
The gloom was exacerbated by a more than 4 percent drop in oil prices after the Organization of the Petroleum Exporting Countries ended a key meeting with no decision on crude output. It will debate an output cut on Friday with other exporters.
Against this backdrop, yields on higher-rated euro zone bonds fell across the board. In Germany, the bloc’s benchmark bond issuer, long-dated yields fell more than four basis points to 0.224 percent, a six-month low.
“We are also scratching our heads about the level of German Bund yields, but it all depends on oil and stock markets right now,” said Alexander Aldinger, a rate strategist at Bayerische Landesbank.
Bund yields are at their lowest since a rout in Italian bond markets in May, reflecting trade tensions, the growth outlook and next week’s key vote in the British parliament on Prime Minister Theresa May’s Brexit deal.
Ten-year yields have fallen eight bps so far this week, putting them on track for the biggest weekly fall since late-October.
The oil price fall adds to downward pressures on inflation in the single currency bloc. A long-term gauge of the market’s euro zone inflation expectations fell back towards more than one-year lows hit recently.
“If the inflation outlook deteriorates that feeds back into ECB policy making,” said Chris Scicluna, head of economic research at Daiwa Capital Markets. “We don’t think the ECB will be able to raise rates next year.”
An inversion of the short-end of the U.S. government bond yield curve this week for the first time in a decade has also created some anxiety, since it could be a prelude to an inversion of the broader U.S. yield curve, viewed as an indicator of recession risks.
France’s 10-year bond yield fell to 0.65 percent , its lowest level since July. Finnish and Irish 10-year bond yields fell to their lowest since September.
Elsewhere, Italy’s bond market was unable to escape the broader selloff in risk assets, with short-dated two- and five-year yields rising as much as 18 bps on the day .
The League will accept only a minor reduction to next year’s budget deficit target of 2.4 percent, senior party sources said on Thursday, conceding little to Brussels, which says the plan breaks European Union public finance rules.
Reporting by Dhara Ranasinghe and Sujata Rao; Editing by Larry King and Edmund Blair