July 11, 2018 / 7:28 AM / 8 months ago

Euro zone bond yields fall as U.S. raises stakes in China trade row

* US to impose 10 pct tariffs on $200 bln of Chinese goods

* Stocks fall, US, German bond yields lower

* Germany to sell 10-year debt

* Italy not considering plan B for euro exit - deputy PM

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Dhara Ranasinghe

LONDON, July 11 (Reuters) - Safe-haven bond yields in the euro area pushed lower on Wednesday, as the United States threatened to impose 10 percent tariffs on a list of Chinese imports.

Fears about an escalation in the trade dispute between the world’s two biggest economies put world stock markets on the defensive, with European equity markets down 0.9 percent in early trade.

Washington proposed the extra tariffs after efforts to negotiate a solution failed to reach an agreement, senior administration officials said on Tuesday.

While higher tariffs tend to imply higher inflation, for now at least higher-rated bond markets such as Germany and the U.S. Treasury market are benefiting from concerns that a global trade war would hurt economic growth and encourage major central banks to keep interest rates low.

German will sell four billion euros of 10-year bonds later in the day. Investors often sell existing bonds to make way for new supply but on this occasion, trade-war jitters held sway and pinned yields down.

“Looking at upcoming supply and the new 10-year German bond today, you would expect rates to move higher but the trade war story is keeping a firm grip on bond markets and reinforcing safe-haven flows,” said Martin van Vliet, a senior rates strategist at ING.

Bond yields across the euro zone were 2 to 3 basis points lower.

Germany’s 10-year Bund yield fell 2 bps to 0.30 percent , edging towards last week’s five-week low.

U.S. Treasury yields also extended their decline into the European session. Ten-year bond yields were down almost 4 bps at 2.84 percent.

Yields also nudged lower in Italy after a minor selloff late Tuesday, following comments on Italy’s membership of the single currency by a eurosceptic member of the government.

But on Wednesday, Italian Deputy Prime Minister Luigi Di Maio said the country is not considering any “plan B” to leave the euro zone.

In a television interview, Di Maio, who leads the anti-establishment 5-Star Movement, also said his party “doesn’t want to leave the euro or to be forced to leave it.”

Reporting by Dhara Ranasinghe, editing by Larry King

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