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UPDATE 1-Bond yields rise on cooling North Korea tensions, U.S. hike heat

* N.Korea delays plans to fire missiles near U.S. territory

* German yields rise with U.S., British equivalents

* Fed policymaker expects another hike in 2017

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices)

LONDON, Aug 15 (Reuters) - Euro zone government bond yields rose with other global benchmarks on Tuesday as North Korean tensions eased and expectations for a U.S. rate hike later this year rebounded.

North Korea's state media said its leader had delayed a decision on firing missiles towards the U.S. Pacific territory of Guam while he watches the United States' actions for a little longer.

This calmed investor nerves after a sharp escalation in rhetoric last week firmed demand for government bonds, often seen as a safe store for cash during crises.

Yields, which move inversely to prices, rose as those safety bets unwound. Comments from one of the U.S. Federal Reserve's most influential members that he expects to raise interest rates once more this year accelerated the move.

"There is a more relaxed attitude being taken towards the Korean situation in markets. With the report North Korea has put its plans on hold, there is a sense of stepping back from the brink," Rabobank analyst Lyn Graham-Taylor said.

"The market has also been generally scaling back expectations of a Fed hike recently, so a more hawkish tone on Monday added to the mix."

Europe's benchmark German 10-year bond yield traded up 3 basis points (bps) to 0.43 percent on Tuesday, adding to Monday's 3 bps rise and moving further off Friday's six-week low of 0.38 percent.

That followed a similar move in U.S. equivalents, while British bond yields rose as government ministers set out plans to try to smooth its divorce from the European Union.

Across the euro area, yields were broadly higher. Italian 10-year yields hit a two-week high of 2.07 percent, at one stage up as much as 7 bps.

Economic data from the United States was on investors' radars after New York Fed President William Dudley, a close ally of Fed Chair Janet Yellen, told the Associated Press he saw another rate hike and balance sheet reductions in 2017.

Rates futures implied traders saw a 42 percent chance of a rate hike at the Fed's December meeting,, up from 36 percent late Friday, CME Group's FedWatch tool showed.

Those expectations could be bolstered further by retail sales data due on Tuesday.

Economists polled by Reuters expect a 0.4 percent month-on-month gain in July, a marked improvement on June's 0.2 percent slump - the biggest monthly decline for almost a year.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.bi z / c m s / ? p a g e I d = l i v e m a r k e t s

(Editing by Alexander Smith)