UPDATE 2-Euro zone bond yields rise as Eurogroup meeting looms

* Euro zone yields up 3-5 bps as US tax plan finally passes

* Eurogroup meeting to discuss 2018 budgets, choose new head

* Report links EONIA price jump to Greek bank lending

* Brexit deal eyed as British PM May set to meet EU officials

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

LONDON, Dec 4 (Reuters) - Euro zone bond yields rose on Monday after the U.S. Senate passed a tax bill over the weekend, increasing the chances of more aggressive interest rate hikes there, while focus turned to a key meeting of euro zone finance ministers.

The bloc's finance ministers are set to meet later on Monday, with 2018 budgets, a review of reforms in Greece under the latest bailout agreement and a post-bailout review of Cyprus and Spain among the topics of discussion.

The Eurogroup of finance ministers is also set to choose a new head to replace Jeroen Djisselbloem, with finance ministers from Latvia, Luxembourg, Portugal and Slovakia among the candidates.

"It will be interesting to see what happens if Mario Centeno of Portugal emerges as the frontrunner, having presided over a healthy recovery in Portugal," Investec economist Philip Shaw said.

"His fiscal packages have involved less of tightening and emphasis on different areas where the tightening has fallen - less of a squeeze on pensions for example. What this means for the European budget we will have to wait and see," Shaw added.

Yields were higher across the board on Monday as euro zone government bonds caught up with movements in U.S. Treasuries.

The Senate narrowly approved a tax overhaul on Saturday, moving Republicans and President Donald Trump closer to their goal of slashing taxes for businesses and the rich while offering everyday Americans a mixed bag of changes.

"We had quite high valuations on European government bonds on Friday following the Flynn revelations, so Bunds had some catching up to do after the Senate passed the tax bill this weekend," said DZ Bank analyst Rene Albrecht.

Tax cuts in the United States should boost growth and inflation and therefore increase the possibility of more aggressive rate hikes, he said.

"Secondly, the cuts add another 1.5 trillion dollars to U.S. debt over the next 10 years, so U.S. Treasuries should be cheaper," he said.

The debt of the world's major developed countries tend to move in sympathy with each other, as many international investors switch between them.

German bund futures opened more than 50 ticks lower at 163.2 on Monday and euro zone bond yields jumped 3 to 5 basis points across the board, bouncing off lows hit on Friday on the back of increased political risk in the U.S.

The yield on Germany's 10-year government bond , the benchmark for the region, was 3 basis points higher at 0.33 percent, off Friday's near three-month low of 0.29 percent.


A jump in Euro Over Night Index Average (EONIA) prices, a key overnight benchmark rate used by European banks to lend money to each other, was caused by the National Bank of Greece's lending money to fellow Greek banks, a Bloomberg report suggested.

"These are low credit banks so they pay higher rates, and given the average volume of trading is very low at 5.6 billion euros (a day), you can see how it would have an effect on the price," said Albrecht of DZ Bank.

He said EONIA prices were likely to stabilise this week.

By Friday, pricing was fixed at minus 0.291 percent, down from minus 0.241 percent on Thursday.

Later on Monday, British Prime Minister Theresa May hopes to break a deadlock in Brexit talks at a meeting with EU officials, with some of her party members urging her to walk away unless there is progress.

UK 10-year Gilt yields rose sharply by 5 bps to 1.27 percent, suggesting the market was expecting progress towards a deal.

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 Abhinav Ramnarayan; Additional reporting by Helen Reid; Editing by Larry King and Andrew heavens)