Wires

UPDATE 2-Trade optimism keeps euro zone bonds steady

Yoruk Bahceli

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices)

LONDON, Nov 26 (Reuters) - Euro zone bond yields eased on Tuesday as U.S. and Chinese officials appeared to make progress in agreeing the first phase of a trade deal.

Trade negotiators from China and the United States held a phone call on Tuesday morning, China's Commerce Ministry said, as the two sides try to end a trade war that has dragged on for 16 months.

Encouraging reports out of China and the United States on Monday had pushed yields higher after uncertainty around the negotiations and weak euro zone data boosted safe-haven assets last week.

"We have seen a lot of progress, but what we need right now to see rising yields is a real agreement on the last stage of the phase-one deal. We had a lot of comment; now we need actions," said DZ Bank strategist Sebastian Fellechner.

Most euro zone bond yields were lower on the day. Benchmark German 10-year bund yields were down 1 basis point to -0.375% from a five-month high at -0.22% reached earlier in November that had been driven by growing trade optimism.

But it is more important to focus on the second phase of a potential U.S.-Chinese deal, said Rabobank strategist Matthew Cairns. This will be much harder to clinch as it would address the main U.S. demands on issues such as intellectual property rights, he added.

Therefore, any rise in bond yields resulting from a phase one deal would be temporary, Cairns said.

Meanwhile, the mood among German consumers rose unexpectedly heading into December, a survey showed on Tuesday, suggesting that household spending will continue to prop up growth.

Consumer spending helped Germany avoid a recession in the third quarter though its manufacturing remains in contraction.

Comments by the European Central Bank's Austrian governing council member Robert Holzmann have reinforced the view that the bar for further ECB stimulus is high. He said on Monday that all monetary policy objectives will be fair game in a policy review that he said would start in January.

"Attention turns to potential changes to the central banks' definition of price stability," ING analysts said in a client note.

The European Central Bank's bond-buying programme has made borrowing over 10 years one percentage point cheaper for Germany, France, Italy and Spain, ECB chief economist Philip Lane said late on Monday. (Reporting by Yoruk Bahceli Editing by Mark Heinrich)