Wires

UPDATE 2-Italy's bond yields rise as periphery comes under selling pressure again

Dhara Ranasinghe and Elizabeth Howcroft

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* German 10-year yield steady at -0.33%

* Southern European yields rise

* Trade war remains key focus

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Recasts with move in southern European bond markets)

LONDON, Nov 19 (Reuters) - Southern European bond yields rose on Tuesday, continuing to underperform higher-rated debt markets in the euro area as risk assets globally came under selling pressure.

Borrowing costs in Germany, France and the Netherlands were all little changed on the day with focus remaining on U.S.-China trade talks.

But yields in Italy, Spain and Portugal all headed up as the session wore on, reflecting a slightly more cautious tone in world equity markets.

"The sell off in southern European bonds is some reflection of the weakness in equities as they come off the day's highs," said DZ Bank rates strategist Christian Lenk.

Italy's 10-year bond yield was up 5 basis points at 1.35% , heading back towards more than two-month highs hit last week.

Spanish and Portuguese 10-year bond yields were each 2 bps higher on the day .

Renewed political uncertainty in southern Europe, profit taking after this year's strong price gains, and concern that European Central Bank stimulus is reaching its limits have all hurt peripheral euro zone debt markets recently.

"Profit taking into year-end seems the dominant theme, and particularly foreign investors should be reluctant to recommit in the face of increasing political uncertainty in Spain as well as Italy," Commerzbank strategists wrote in a note to clients.

In contrast, the German 10-year Bund yield was flat on the day at -0.33%. French 10-year yields were similarly muted with focus remaining on trade war news.

Trade tensions have dominated sentiment in recent days. Market positioning means bond yields are especially receptive to positive trade-war developments, said Lyn Graham-Taylor, a fixed income strategist at Rabobank.

The next round of U.S. tariffs on Chinese goods takes effect on Dec. 15. Hopes for a trade deal are diminishing amid reports the United States is reluctant to roll back existing tariffs.

But in a positive sign for U.S.-China relations, the United States offered Chinese tech company Huawei a 90-day license extension.

"The market has been trading trade-related headlines asymmetrically for quite a long time. If it's vaguely ambiguous or slightly positive it will be traded in quite a positive fashion - yields will sell off," Graham-Taylor said.

Focus also turned to minutes due out on Wednesday from the October meeting of the U.S. Federal Reserve. New ECB chief Christine Lagarde, meanwhile, is due to speak on Friday.

Euro zone PMI data, a closely-watched gauge of economic activity, is also due on Friday.

(Reporting by Dhara Ranasinghe and Elizabeth Howcroft; Editing by Andrew Cawthorne)