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UPDATE 1-Euro zone bond yields fall to one-week lows

Yoruk Bahceli and Dhara Ranasinghe

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates with price moves, euro zone GDP, comment)

LONDON, Nov 14 (Reuters) - Euro zone government bond yields fell to one-week lows on Thursday as weak economic data globally gave investors an incentive to move back into fixed income after a recent selloff.

China's factory output growth slowed more than expected in October, Japan's economy ground to a standstill in the third quarter and the German economy only narrowly avoided a recession in the third quarter.

In addition, renewed uncertainty about U.S.-China trade talks has boosted safe-haven assets.

"The data is still downbeat," said Chris Scicluna, head of economic research at Daiwa Capital Markets. "All the factors that contributed to the bond selloff -- whether that's optimism on a trade deal or signs that data is stabilizing -- we'd say there isn't a great deal of substance to them."

Ten-year bond yields across the euro area fell around 2 basis points each. Germany, French and Dutch yields reached one-week lows .

France's 10-year bond yield slipped back into negative territory a week after it turned positive for the first time since July. Germany's Bund yield fell to a low of -0.3% , down from last week's three-and-a-half-month low around -0.22%.

The euro zone economy continued to grow at a modest pace in the third quarter, as expected, data showed on Thursday.

"Obviously, it's better than expected; Germany didn't enter into a technical recession, 1/8but the 3/8 market seems to have shrugged it off," said Lyn-Graham Taylor, a fixed-income strategist at Rabobank, referring to the German data.

German Economy Minister Peter Altmaier warned that economic developments remained fragile.

Focus remains on U.S.-China trade tensions, with the Wall Street Journal reporting that talks have "hit a snag" over farm purchases.

The drop in Germany's 10-year bond yield on Wednesday was the biggest daily decline since September. It came after U.S. President Donald Trump threatened to raise tariffs on China if it failed to sign a trade deal, dimming the optimism that had hurt bond markets in recent weeks.

Elsewhere, the volumes behind the euro zone's new unsecured overnight lending benchmark, ESTR, fell on Wednesday to 23 billion euros compared with 30 billion euros a day earlier, according to data from the European Central Bank.

The number of active banks behind ESTR fell from 30 to 20, with the share of the five most active banks increasing to 70% from 57%, suggesting that smaller banks may have dropped out from the market -- a move analysts said may be attributed to the ECB's new tiered rate policy, which has encouraged banks to park cash at the central bank. (Reporting by Dhara Ranasinghe and Yoruk Bahceli; editing by Larry King)