UPDATE 2-Euro zone bond yields hover below one-week highs with trade deal in sight

* German Bund yield briefly touches one-week highs

* U.S. job growth slows

* Markets steady after wild swings in past week

* Euro zone periphery govt bond yields (Updates with US jobs data, price, bullets)

LONDON, Jan 10 (Reuters) - European government debt yields dipped on Friday but stayed near one-week highs as fears of conflict in the Middle East dissipated and investors re-focused on a warming of trade relations between the United States and China.

A Phase 1 deal is expected to be signed by the two countries next week, the first staging post in ending a dispute that threatened to hammer global growth and boosted demand for safer assets such as bonds.

U.S. President Donald Trump has said preparations for the second phase of talks would start immediately afterward, although most analysts believe China would rather wait until after the U.S. presidential election in November.

“We do not exclude warm words being said on that topic at the phase one signature ceremony next week, but we suspect a strong appetite to sweep the issue under the proverbial carpet until the U.S. election,” ING analysts said in a note to clients.

Italy’s 10-year bond yield was down 5 basis points (bps) at 1.33%, having hit a three-week low at 1.31% after Italian industrial production rose unexpectedly by 0.1% month-on-month in November.

The benchmark German Bund yield was down 1.3 bps at -0.23% , having briefly touched a one-week high at around -0.20%.

Rene Albrecht, a rates strategist at DZ Bank in Frankfurt, said the small decline in euro zone bond yields was due to some Middle Eastern concerns still lingering in the market.

“There is always a threat and this situation (U.S.-Iran conflict) can escalate in the near term and so there is some caution running through the market,” he said.

“I think prices are good for a buying opportunity,” he added.

Most other 10-year euro zone bond yields were down around 1 bps.

U.S. Treasury yields were also lower in choppy trade after the key monthly U.S. jobs report showed job growth slowed more than expected in December and wages stagnated, limiting inflation risk.

Nonfarm payrolls increased by 145,000 jobs in December, while the U.S. jobless rate held near a 50-year low of 3.5%.

Federal Reserve officials have been signalling that U.S. interest rates are likely to stay at current levels. Minneapolis Fed President Neel Kashkari said on Thursday that last year’s rate cuts helped to reduce recession risks, and he expected no change in rates for the foreseeable future. (Reporting by Olga Cotaga; additional reporting by Dhara Ranasinghe; Editing by Larry King and Pravin Char)