UPDATE 2-Euro zone bond yields hold steady near six-month highs

* German 10-year yield little changed, near 6-month highs

* Weak consumer confidence reading jars with improving picture

* Euro zone periphery govt bond yields (Adds consumer confidence data, latest prices)

LONDON, Dec 20 (Reuters) - Germany’s 10-year government bond yield held steady near six-month highs on Friday after rising economic optimism encouraged investors to sell top-rated government debt this week.

Euro zone government bond yields have risen this week, following the release of better-than-expected business confidence data and an interest rate increase by the Swedish central bank that ended negative rates. Sweden’s move has led to speculation about the European Central Bank’s policy next year, where the key interest rate is at minus 0.5%.

“There is no convincing single reason for this movement in yields,” UniCredit analysts said in a note sent out to clients.

“The most likely explanation is a mixture of uncertainty regarding the monetary policy outlook for next year ... improving sentiment and profit taking after a strong year-to-date performance and ahead of the year end.”

Analysts also stressed that thin year-end trading volumes meant it took little to move markets.

Market sentiment saw a boost after U.S. Treasury Secretary Steven Mnuchin said on Thursday that the United States and China would sign phase one of their trade agreement in early January.

Mnuchin said the documentation was completely finished and just undergoing a technical “scrub”, though Beijing has so far dodged all details of the deal.

Most 10-year bond yields were unchanged , with Germany’s benchmark at -0.231%, off Thursday’s six-month high of -0.208%.

Italian yields gained, with the 10-year bond rising 2 basis points to 1.414%. Data on Friday showed that morale among Italian businesses and consumers improved in December.

The “flash” euro zone consumer confidence reading for December came in at minus 8.1, a worse reading than the minus 7 expected in a Reuters poll, underlining that while investors are less pessimistic about the economic outlook, sentiment among households remains fragile.

The consumer confidence reading followed Germany’s Ifo business sentiment survey on Wednesday, which beat expectations and implied growth of 0.2% in the fourth quarter for the euro zone’s largest economy. (Additional reporting by Tommy Reggiori Wilkes; Editing by Nick Macfie and Hugh Lawson)