UPDATE 3-New Year blues for bonds, with German Bund yield at seven-month high

* German Bund yield hits seven-month high at -0.157%

* 15-year German yields turn positive for first time since July

* Trade still thin after New Year holiday (Updates prices for close)

LONDON, Jan 2 (Reuters) - Germany’s 10-year bond yield briefly rose to a seven-month high on Thursday as optimism over U.S.-China trade relations fuelled hopes for the world economy and dented safe-haven assets at the start of a new year.

Later on, however, German yields fell to a day’s low at around -0.24%, reversing most of the gains it made earlier in the day.

U.S. President Donald Trump said on Tuesday that Phase 1 of a trade deal with China would be signed on Jan. 15 at the White House.

That boosted investor sentiment, along with a decision by China’s central bank on Wednesday to cut the amount of cash that banks must hold as reserves. The move should release around 800 billion yuan ($115 billion) to shore up the economy.

“Broadly speaking there is a sense that maybe the worst has passed in terms of weakness for global manufacturing, which was a main feature of 2019,” said Chris Scicluna, head of economic research at Daiwa Capital Markets.

“But there is not a strong evidence base for that, so although yields are higher and some would say that’s because of the Chinese central bank easing, there is a significant risk that things will turn again.”

Germany’s 10-year Bund yield had risen to -0.157% before edging back after a final reading of activity data in the bloc showed economic conditions remain weak.

IHS Markit’s Purchasing Managers’ Index for German manufacturing, which accounts for about a fifth of the economy, fell to 43.7 in December in a final reading released on Thursday, down from November’s five-month high of 44.1.

Indeed, in late trade Bund yields were down 4.8 basis points at -0.231%, though still around 8 bps higher from month-ago levels.

The yield on Germany’s 15-year bond briefly touched 0.001% , turning positive for the first time since July. Like the 10-year yield, it later reversed those gains and was last down 5.1 bps at -0.0914%.

Two-year yields reached their highest since April at -0.571% .

Austria’s 10-year bond yield, which has dipped in and out of positive territory in the past month, was positive again at 0.02%.

In general, bond yields across the euro zone have risen in recent months, reflecting hopes for growth and reduced concern over the U.S.-China trade war.

Tradeweb data on Thursday showed the pool of negative-yielding euro zone government bonds shrank in December to a seven-month low of 4.14 trillion euros.

“In terms of the China/U.S. Phase 1 trade deal, the market has priced this in now,” said Henry Occleston, rates strategist at Mizuho.

“It is too early to gauge the tone in bond markets,” he added, noting that trading conditions remain thin following the New Year’s holidays.

Reporting by Dhara Ranasinghe; Editing by Alison Williams