UPDATE 1-Euro zone bond yields edge up on trade deal hopes

Elizabeth Howcroft

* Hopes for U.S.-China trade breakthrough lift yields

* German business morale improves; no reaction

* Euro zone periphery government bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices, adds Ifo data)

LONDON, Nov 25 (Reuters) - Core euro zone bond yields rose slightly on Monday, as positive trade war developments trumped last week's weak euro zone data.

Market sentiment was lifted by news over the weekend that China was seeking to raise substantially the upper limits for intellectual property violation fines.

"The intellectual property transfers is a big sticking point in the negotiations because the U.S. has for a long time been accusing China of stealing its intellectual property," said Peter McCallum, rates strategist at Mizuho.

"That would be quite a big breakthrough if there was a material change in how China dealt with it," he said.

U.S. national security adviser Robert O'Brien said on Saturday an initial "phase one" trade agreement with China was possible by the end of the year. Officials on both sides have said a second phase agreement looked less likely.

Most euro zone government bond yields recovered from lows hit on Friday when euro zone data showed business growth almost ground to a halt and the services industry grew at a weaker pace than expected.

The German benchmark 10-year bond yield was up two basis points in early London trading, before easing to trade almost flat on the day at -0.354%.

Over the weekend, Fitch ratings agency kept Portugal's rating as BBB, with outlook positive, and Austria at AA+, also with a positive outlook.

The spread between German and Portuguese 10-year yields, which widened to its most in two months on Friday, started to narrow again, down to 72.80 from highs of 77.5.

Gains in core bonds were mostly limited to less than one basis point. Semi-core and peripheral government bonds like Ireland, Italy and Spain were slightly down on the day.

Yields were unmoved by German Ifo Business Climate Index data which showed business morale rose in November in line with a Reuters poll.

U.S. Federal Reserve Chair Jerome Powell speaks later on Monday. He is expected to reiterate a steady outlook for rates, after better-than-expected manufacturing output and services activity data on Friday.

Further U.S. economic data is due later this week, including gross domestic product estimates and unemployment data on Wednesday.

"Volatility could increase with market liquidity set to turn choppier in the Thanksgiving-shortened week and a large U.S. data cluster due on Tuesday and Wednesday," Commerzbank strategist Rainer Guntermann wrote in a note to clients. (Reporting by Elizabeth Howcroft; Editing by Edmund Blair and Alexander Smith)