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UPDATE 1-German Bund yield rises to near 7-month high as stellar year draws to a close

Dhara Ranasinghe

to a close@

* German Bund yield rises to -0.2%, highest since early June

* Still down almost 50 bps this year

* Set for biggest annual fall since 2014

* World bond yields at the end of 2019: https://tmsnrt.rs/2sRd4Qy (There will be no London-based euro zone bond market report on Dec. 31 due to the New Year's Eve market holiday)

LONDON, Dec 30 (Reuters) - Germany's 10-year bond yield hit its highest level since early June on Monday, as optimism over U.S.-China trade relations and global growth put bond markets on the back foot as the end of a stunning year drew to a close.

Bond yields, which move in the opposite direction to the price, have risen since September as worries surrounding U.S.-China trade tensions and Brexit ebbed, while data suggested the worst may be over for the world economy.

Analysts say bond markets are unlikely to see the same steep yield falls in 2020 as they have in 2019 when trade tensions, recession fears and central bank easing drove demand for fixed income.

Indeed, Germany's 10-year bond yield rose to -0.20% on Monday, its highest in almost seven months. Most 10-year euro zone bond yields were 4-5 bps higher on the day, with moves exacerbated by holiday-thinned trade.

Still, German, Dutch, and French yields are poised for their biggest annual declines in five years , having tumbled 45-60 bps. U.S. Treasury yields are also set for their biggest annual yield falls since 2014.

"The idea is the main bearish force for bonds is an improving growth outlook that tends to drive some rotation from fixed income to riskier markets," said John Normand, head of Cross-Asset Fundamental Strategy at J.P. Morgan, adding there were two big anchors for bonds markets.

"One is the negative cash rate environment in Europe and Japan, which is not going to change and related to that is the very dovish Fed environment. ..The other anchor is the scarcity created by very large central bank balance sheets and the persistence of QE (quantitative easing) in Europe."

The Federal Reserve has cut rates three times this year, while the European Central Bank lowered its deposit rate in September and announced the return of asset purchases.

China's central bank at the weekend announced a measure that would help lower borrowing costs and boost economic growth. .

Some analysts argue that with the U.S./China trade conflict far from over, weighing on global growth, demand for safe-haven bonds will remain in place.

Year-end 2020 forecasts for Germany bond yields vary, highlighting the breadth of views on the economic outlook.

"Bond markets do not appear classically good value to me, but then I said that 12 months ago," said Chris Bailey, European Strategist at Raymond James.

"There is much to think about in terms of fixed income markets in 2020. It could be a big/influential year and certainly decade - will there be a regime shift versus the world since 1982?"

Some analysts were bearish on Italian bonds, one of the few markets to offer investors positive yields this year. More than half of the euro zone government bond market remains in negative-yield territory.

Italian 10-year bond yields have tumbled 137 bps this year to 1.40%, Greek yields have slid almost 290 bps .

"We see Italian BTPs underperforming versus the German Bund and Spanish Bonos as euro zone economic stagnation continues in spite of U.S positivity through Q1," said Henry Occleston, a rates strategist at Mizhuo.

(Reporting by Dhara Ranasinghe, additional reporting by Tom Arnold; editing by William Maclean)