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TREASURIES-U.S. bond yields fall on trade war rhetoric

* Yields lower on Trump trade talk

* Results of Italian election inconclusive

NEW YORK, March 5 (Reuters) - Treasury yields fell on Monday as prices were bolstered by investors seeking safe-haven bets amid U.S. President Donald Trump's trade war rhetoric. The yield on the benchmark government bond continued its downward trend from last week driven by uncertainty about what the tariffs on steel and aluminum announced on Thursday may mean for the real economy and whether they may provoke retaliation from U.S. trading partners. China, for example, could take the form of counter-tariffs or a central bank selloff of U.S. Treasuries. "I dont think a trade war characterized by central bank dumping of Treasuries is really on the radar. But we could be in for a period of retaliatory industry-specific tariffs," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. "That's not my baseline assumption," said Lyngen about retaliatory tariffs, "but I think it's something that's on the radar and thats what the market is worried about at this moment." Trump has touted the planned tariffs as a way to revive the U.S. steel and aluminum industries. This point was reiterated on Monday by White House Director of Trade and Industrial Policy Peter Navarro, who told Fox News, "As the president said, we can't have a country without an aluminum and steel industry."

At 10:30 a.m. (1530 GMT) the 10-year yield was at 2.842 percent, down 1.5 basis points from Friday's close. The uncertain result of the Italian election also drove U.S. yields lower, Lyngen said. Two anti-establishment leaders made early plays to govern Italy on Monday, sending ripples across the euro zone after voters relegated mainstream parties to the sidelines in delivering a hung parliament. With the vote count well advanced and full results due later on Monday, it looked almost certain that none of the three main factions would be able to govern alone, and President Sergio Mattarella is not expected to open formal coalition talks until early April. As the bloc's third-largest economy seemingly faced prolonged political instability, Italian government bonds sold off and the euro was under pressure. Yields were lower along the curve, but all traded within last week's range. U.S. 2-year Treasury yields were last at 2.222 percent. The long end was also under pressure with 30-year yields last at 3.119 percent.

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Currency bid prices at 10:26AM (1526 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change

Session

Euro/Dollar EUR= $1.2315 $1.2317 -0.02% +2.66% +1.2365 +1.2270 Dollar/Yen JPY= 105.7300 105.7300 +0.00% -6.16% +105.9100 +105.3600 Euro/Yen EURJPY= 130.25 130.24 +0.01% -3.65% +130.5000 +129.3700 Dollar/Swiss CHF= 0.9382 0.9380 +0.02% -3.71% +0.9394 +0.9348 Sterling/Dollar GBP= 1.3814 1.3802 +0.09% +2.24% +1.3834 +1.3768 Dollar/Canadian CAD= 1.2972 1.2878 +0.73% +3.14% +1.2988 +1.2872 Australian/Doll AUD= 0.7737 0.7762 -0.32% -0.82% +0.7778 +0.7727

ar

Euro/Swiss EURCHF= 1.1556 1.1550 +0.05% -1.14% +1.1566 +1.1512 Euro/Sterling EURGBP= 0.8915 0.8921 -0.07% +0.36% +0.8951 +0.8897 NZ Dollar/Dolar NZD= 0.7224 0.7243 -0.26% +1.95% +0.7255 +0.7204 Dollar/Norway NOK= 7.8328 7.7834 +0.63% -4.56% +7.8507 +7.7614 Euro/Norway EURNOK= 9.6483 9.5895 +0.61% -2.03% +9.6582 +9.5834 Dollar/Sweden SEK= 8.2688 8.2473 +0.22% +0.82% +8.2910 +8.2366 Euro/Sweden EURSEK= 10.1849 10.1629 +0.22% +3.51% +10.1872 +10.1480

(Reporting by Kate Duguid; editing by Grant McCool)