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UPDATE 1-N.Korea nuclear test bolsters safe-haven German debt

* Top-rated euro zone bond yields dip

* N.Korea nuclear test unsettles world markets

* ECB meets on Thursday

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

LONDON, Sept 4 (Reuters) - Germany's short-dated government bond yields dipped to their lowest levels in over four months on Monday after the sixth and most powerful North Korean nuclear test a day earlier lifted demand for safe-haven assets globally.

South Korea said on Monday it was preparing fresh military drills with its ally the United States and ramping up its ballistic missile defences in response to the test.

In a week in which a number of central banks including the European Central Bank, the Bank of Canada and Reserve Bank of Australia are due to meet, tensions in North Korea turned investors' focus away from the monetary policy outlook for now.

"The name of the game of this week would have been the ECB but now we have to take into account North Korea," said Jean-Francois Robin, head of strategy at Natixis in Paris.

"There is a risk-off mood in world markets with yield curves in core markets flattening."

Japan's 10-year government bond yield fell to a 10-month low at minus 0.010 percent, while gold, another safe-haven asset, rose to 10-month highs.

Two-year bond yields in Germany -- the euro zone's benchmark bond issuer -- dipped to minus 0.769 percent, their lowest level since April.

Ten-year bond yields slipped 1.5 basis points to around 0.36 percent, moving back towards two-month lows hit last week at 0.32 percent.

Most other euro zone bond yields were down 1-2 basis points, also well supported as a strengthening in the euro added to a view of a cautious stance from the ECB this week.

"Euro strength underlines the ECB will be cautious with its policy unwind," said Richard McGuire, head of rates strategy at Rabobank.

The overall reaction in euro zone bond markets was muted, however, with strategists citing a reluctance to pile in heavily into bonds ahead of Thursday's ECB meeting and adding that a pick-up in bond supply this week limited falls in bond yields.

A holiday in the United States on Monday further subdued trade.

Sentiment towards lower-rated peripheral bonds -- often in the firing line at times of global risk aversion -- received a boost after ratings agency Moody's lifted the outlook on Portugal's rating on Friday to positive from stable.

Germany was also in focus after Chancellor Angela Merkel appeared to hold her ground in a television debate at the weekend ahead of elections later this month.

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

(Reporting by Dhara Ranasinghe; Editing by Catherine Evans)