* Michael Flynn prepared to testify against Trump - ABC
* Flynn pleads guilty to lying to FBI
* Bond yields tumble, stocks fall, euro rallies
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
LONDON, Dec 1 (Reuters) - German bond yields slid to their lowest in almost three months and were set for their biggest one-day fall in almost a year on Friday on reports that Michael Flynn, a former adviser to Donald Trump, was prepared to testify against the U.S. president.
According to a report from ABC News, Flynn said he was ready to testify that Trump directed him to make contact with the Russians when he was a presidential candidate.
Flynn said in a statement on Friday that his decision to plead guilty to lying to the FBI and to cooperate with an investigation into possible ties between Russia and President Donald Trump's administration was "made in the best interests of my family and of our country".
"If it is true, then the market should be pricing a lower likelihood of Trump's economic agenda being implemented," said Mizuho rates strategist Antoine Bouvet.
The news, which broke in late European trade, reverberated across financial markets on both sides of the Atlantic, with Wall Street shares and U.S. Treasury yields tumbling.
The leading index of euro zone companies slid sharply, and was down 1.19 percent near its day's low, tracking a fall in U.S. stocks.
The euro climbed on the news as the dollar weakened broadly, trading as high as $1.1940, up from around $1.1890 beforehand.
Investors ploughed into the safety of government bonds, with yields on top-rated euro zone debt down 7-9 basis points in late trade.
Germany's benchmark 10-year government tumbled 7 bps to 0.29 percent, its lowest level since September 8. It was last down 6.2 bps and set for its biggest one-day fall in almost a year.
In the U.S., 10-year Treasury yields fell 6 basis points to 2.35 percent.
"The question is now how much damage this can do to Trump and just what else will Flynn testify when under oath," said James Hughes, chief market analyst at AxiTrader.
"This news comes just as the President was getting traction on his tax bill so the timing of this could well be damaging not only for the president himself but for the future of that tax bill."
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; Additional reporting by Abhinav Ramanaryan; editing by Ralph Boulton)