April 5, 2019 / 3:39 PM / 6 months ago

UPDATE 3-German Bund yields at 2-week highs as Trump sees China trade deal near

* U.S. president says deal with China possible in 4 weeks

* Bund yields briefly back in positive territory at 0.024 pct

* German industrial production surprises to the upside

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds late move in bond yields, payrolls data)

By Abhinav Ramnarayan

LONDON, April 5 (Reuters) - Government bond yields in Europe rose on Friday after U.S. President Donald Trump said a trade deal with China may be reached within four weeks.

Reports that Britain may get the offer of a long extension period before Brexit and better-than-expected German industrial production numbers also helped perk up sentiment, pushing investors away from safe haven government bonds.

The world's two largest economies are engaged in intense talks to end a months-long trade war that has rattled global markets, but hopes of a resolution soared after both sides expressed optimism following talks in Beijing last week.

The German 10-year Bund yield, the benchmark for the euro zone, hit a two-week high at 0.024 percent.

It was last hovering around zero percent, up around a basis point on the day.

The bund yields and other euro zone government bond yields drifted down from session highs after data showed U.S. job growth rebounded in March but wage gains moderated.

"The headline number on payrolls was good but the wage growth number is another piece of important evidence that feeds into the Fed's dovish message," said Rabobank rates strategist Matt Cairns, referring to the U.S. Federal Reserve.

The benchmark 10-year U.S. Treasury yield was last trading a touch lower on the day at 2.50 percent.

The chairman of European Union leaders Donald Tusk is likely to offer Britain a flexible extension of the date of the country's exit from the EU of up to one year, with the possibility of leaving sooner, a senior EU official said.

"The main overnight news, which is positive if not very substantial, is around the U.S.-China trade deal," said Mizuho rates strategist Antoine Bouvet. "There's also some optimism surrounding Brexit, it looks like we are heading towards a long extension."

In addition, German industrial production numbers surprised to the upside, rising by 0.7 percent in February as mild weather led to increases in construction activity.

"A warm thank you to the construction sector," said Carsten Brzeski, an economist at ING, though he added that more generally speaking German industry remains an international reason for concern.

"While the headline number seems to provide some relief, the components show that activity in the manufacturing sector actually dropped by 0.2 percent month-on-month," he said in a note. (Additional reporting by Dhara Ranasinghe; Editing by Andrew Cawthorne)

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