* Yields higher day after drop to record lows
* Escalating trade wars, dire data fuel recession fears
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, Aug 8 (Reuters) - Euro zone bond yields edged up on Thursday, a day after pushing borrowing costs to record lows amid growing fear that the world economy is heading for a recession.
After falling nine straight days, its longest decline since late 2015, Germany's 10-year bond yield rose 2.5 basis points to -0.56%.
It reached record lows alongside other euro zone bonds on Wednesday, after an unexpectedly large interest rate cut in New Zealand and dire German industrial production data fuelled expectations for more central bank easing to shore up growth.
That followed days of growing anxiety over escalating U.S./China trade tensions.
Washington on Monday branded Beijing a currency manipulator for the first time since 1994 after China allowed its currency to weaken beyond 7 per dollar for the first time in more than a decade.
The prospect of recession widened the inversion between U.S. three-month bills and 10-year yields to 39 basis points on Wednesday, a level not seen since March 2007.
Long-term global borrowing rates have never been lower. The aggregate yield on a Bloomberg-Barclays index of seven- to 10-year bonds worldwide dropped to a record low 1.44% on Wednesday.
"The combination of trade war escalation, summer liquidity, expectations for more QE (quantitative easing) explain the latest move lower in bond yields and why real money investors have chased yields lower," said Fabio Bassi, head of European rates strategy at JP Morgan.
"The result of what central banks actually deliver now and clarity on the macro impact of trade wars will set the tone going forward."
Ten-year euro zone bond yields rose 2 to 3 basis points. The selloff was most pronounced in southern Europe, which has benefited from the rush to grab bonds with a positive yield.
Japanese investors bought Italian bonds in June at the fastest pace in more than four years, Japanese finance ministry data showed on Thursday.
They also sold German debt in June at the fastest pace in more than a year. The entire German yield curve has slipped into negative territory, reducing the appeal of holding German bonds .
Ten-year bond yields in Italy, Spain and Portugal rose 6 to 11 basis points and analysts said political uncertainty in Italy was weighing on sentiment there.
"In the very short run, the focus will shift to Italy," analysts at UniCredit said in a note. "The increasing likelihood of an early election makes BTPs (Italian bonds) vulnerable in today's trading."
Reporting by Dhara Ranasingh, editing by Larry King