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UPDATE 1-German bond yields fall as US warns of tariffs on EU

Dhara Ranasinghe

* Euro zone bond yields fall, breaking streak of daily rises

* US/EU trade conflict adds to global growth worries

* Spain, France sell bonds

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

LONDON, Oct 3 (Reuters) - Government bond yields in safe-haven Germany fell for the first time in over a week on Thursday, after the United States said it would impose tariffs on the European Union, heightening the region's recession risks.

A euro zone bond rally stalled this week -- while U.S. Treasury prices shot up and yields tumbled -- as concern grew that the European Central Bank had limited room to boost growth and inflation. But as stock markets came under pressure, jittery investors turned back to safe-haven government bonds.

The United States on Wednesday said it would impose 10% tariffs on European-made Airbus planes and 25% duties on European products such as French wine as punishment for illegal EU aircraft subsidies.

Ten-year bond yields across the euro area fell 3 to 4 basis points on the day . The drop accelerated after bond auctions in France and Spain.

Germany's 10-year Bund yield fell to -0.58%, falling for the first time in over a week. It was down 3 bps, set for its biggest one-day fall in a week and a half.

"We have been surprised by the uptick in bond yields in the past week, but the trend has been for lower rates given the package from the ECB," said Benjamin Schroeder, senior rates strategist at ING, referring to the ECB decision last month to cut rates and resume asset purchases.

"What has helped now from across the Atlantic was the weak data," he added.

On Tuesday, the Institute for Supply Management (ISM) said its U.S. manufacturing activity index fell in September to its lowest in a decade, fueling expectations the Federal Reserve would cut rates this month.

Until now, the rally in U.S. bonds has failed to spread to the euro zone, leaving the gap between short-dated U.S. and German bond yields at its tightest since late 2017, around 222 bps .

"The thing that has been striking is that German Bunds didn't profit yesterday from the U.S. Treasury rally -- that could be because of pressure from German institutions to drop the 'black zero' and also everyone is aware that the ECB has no ammo left to fight a downturn," said KBC rates strategist Mathias van der Jeugt.

Germany's economic institutes on Wednesday called on Berlin to ditch the so-called black zero budget policy -- not contracting new debt -- if the growth outlook for the German economy deteriorates further.

The selloff in euro zone bonds in recent weeks also meant the pool of bonds with negative yields got no deeper.

Of the roughly 8.18 trillion euros of euro zone government bonds traded on Tradeweb, 68.8%, or 5.63 trillion euros' worth, have a negative yield, data as of end-September showed.

This was the highest share on record but up just marginally from August.

(Reporting by Dhara Ranasinghe Editing by Shri Navaratnam)