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UPDATE 1-Euro zone bond yields hover near lows ahead of inflation data

Abhinav Ramnarayan

* Euro zone inflation expected at 1.2% - Reuters poll

* German yields hover near record lows at -0.32%

* Italian debt outperforms, yields lower 3-4 bps

* Euro zone periphery govt bond yields (Adds quote, updates prices)

LONDON, June 28 (Reuters) - Euro zone government bond yields hovered near record lows in many cases on Friday on tepid inflation data for the bloc and ahead of this weekend's G20 meeting at which the potential easing of a trade conflict will be in focus.

Flatlining inflation in the single currency bloc has forced the European Central Bank to allude to more stimulus, pushing yields to record lows in recent weeks.

And though underlying inflation in the euro zone rebounded in June, offering some comfort to the ECB, the headline figure of 1.2% for the month was still well short of the improvement policymakers are hoping for.

"It's one of those situations where the market has seen the details and said 'it's not changed our view that we're not getting inflation from anywhere', so it was a bit of damp squib really," said Rabobank rates strategist Lyn Graham-Taylor.

Germany's 10-year government bond yield edged lower to -0.32%, close to a record low of -0.336% hit last week.

Italian debt, seen as one of the biggest beneficiaries of ECB largesse, outperformed, with 10-year yields dropping nearly 4 bps to 2.097%.

The closely watched spread over Germany tightened to 241 bps.

In addition to the inflation data, concern over China's stance on trade negotiations with the United States ahead of the weekend's G20 meeting is also keeping alive the bid for safe haven government debt.

U.S. President Donald Trump has agreed to no preconditions for his high-stakes meeting with Chinese President Xi Jinping this weekend and is maintaining his threat to impose new tariffs on Chinese goods, White House economic adviser Larry Kudlow said on Thursday.

"The issue is, if the trade situation improves between the U.S. and China, Trump could start targeting the euro zone instead. So we don't see the trade war worries disappearing soon," said Graham-Taylor. (Reporting by Abhinav Ramnarayan; Editing by Catherine Evans)