(Recasts with Brexit, adds quote, updates prices)
* German spokesman contradicts report on Brexit negotiations
* Heavy corporate debt sales weigh on market
* Comments by officials boost optimism on Italian budget
* U.S.-Canada trade talks in focus
By Karen Brettell
NEW YORK, Sept 5 (Reuters) - U.S. Treasury prices reversed earlier losses on Wednesday after a German spokesman contradicted an earlier report that the British and German governments had abandoned key Brexit demands.
Yields had risen after Bloomberg said Germany was ready to accept a less detailed agreement on future economic and trade ties between Britain and the EU.
They fell back, however, after Reuters quoted a German government spokesman saying “the government's position is unchanged.”
Bonds had rallied before the Bloomberg report in a choppy day of trading as emerging market currencies came under pressure, though that was somewhat offset by heavy corporate supply.
“We traded a little better in the morning but came under heavy pressure on some news about Brexit and some continued (investment grade corporate) supply,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.
Improving sentiment on Italy, as the government sought to reassure markets it would respect European Union rules on fiscal discipline in budget talks, also provided a counterpoint to emerging market concerns.
"There is a sense of optimism coming out of Europe at the moment with some of the Italian headlines," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York.
Benchmark 10-year notes gained 1/32 in price on the day to yield 2.900 percent, down from 2.902 percent on Tuesday. They rose to 2.917 percent after the Bloomberg report, the highest since Aug. 10.
Trade tensions between the United States and other countries, including China and Canada, were also in focus this week.
Canada insisted there was still room to salvage the North American Free Trade Agreement after talks on Wednesday with the U.S. and said both sides would meet again later in the day after separate discussions on this morning's proposals.
A public comment period on the possibility of fresh U.S. tariffs on another $200 billion of Chinese goods ends on Thursday, with expectations that the additional levies will be imposed by U.S. President Donald Trump.
Data on Wednesday showed that the U.S. trade deficit increased to a five-month high in July with the politically sensitive goods trade deficit with China surging 10 percent to a record $36.8 billion.
Markets are now focused on the Labor Department's August jobs report, which is due to be released on Friday. It will be evaluated for further indications of the strength of labor markets and wage pressures. (Editing by Bernadette Baum) )