UPDATE 2-German bond yields hit 3-week high as U.S. stimulus hopes swell

* Euro zone periphery govt bond yields (Adds closing prices, details)

LONDON, Feb 2 (Reuters) - Euro zone government bond yields rose on Tuesday as global market sentiment remained upbeat about U.S. fiscal stimulus, with the German 10-year bond yields hitting their highest level in three weeks.

Global stock markets gained for a second day on Tuesday, spurred by increased optimism about economic stimulus and global recovery.

“The main driver today is represented by optimism in talks on the U.S. fiscal stimulus plan,” said Antoine Bouvet, rates strategist at ING.

The session saw a flurry of euro zone government bond sales and economic indicators.

Belgium and Finland launched sales via syndication of new 50-yr and 30-yr bonds respectively, according to a lead manager and Refinitiv IFR.

Those deals “validate our view at the start of the year that conditions are ripe for long-dated primary market activity,” ING analysts wrote in a note to clients.

Germany sold via auction 4.732 billion euros of a new 2-year bond due March 2023.

From a data perspective, the euro zone economy contracted by less than expected in the fourth quarter of 2020 amid pandemic-induced lockdowns.

Elsewhere in the bloc, Italy’s economy shrank by 2.0% in the fourth quarter of last year from the previous three months, a slightly smaller slump than expected, and preliminary French inflation data showed a 0.8% increase year-on-year in January, higher than a forecast of 0.4%

Shortly after the data was published, long-term inflation expectations for the bloc rose to the highest since May 2019 at 1.3579%

The benchmark German 10-year Bund yield was up around 3 basis points at -0.487% at 1630 GMT, having risen to a 20-day high of -0.481%.

The spread between the German benchmark yield and the 10-year Italian yield was almost flat at 114 basis points .

In Italy, policy conflicts and disagreements over government positions are hampering attempts to revive the country’s ruling coalition as the mediator appointed by President Sergio Mattarella is due to report back later on Tuesday.

Riskier Italian bonds yields edged higher, with the 10-year up around 3 basis point at 0.654%.

“The market believe Italy’s political crisis will be solved very quickly. Optimism is high,” ING’s Bouvet said.

Reporting by Sara Rossi and Elizabeth Howcroft; editing by Giles Elgood and Bernadette Baum