Euro zone bond yields up as flight to safe havens eases

By Joice Alves

LONDON, Oct 23 (Reuters) - Euro zone government bond yields edged up on Thursday, shrugging off U.S. moves to impose sanctions on Russia and consider more trade restrictions on China, as the recent flight to safe-haven assets eased and investors awaited data for direction.

U.S. President Donald Trump hit Russian oil companies Lukoil and Rosneft with sanctions on Wednesday as his frustration grows over Moscow's war in Ukraine. The move followed European Union approval of a 19th package of sanctions on Russia.

The Trump administration is also considering a potential escalation of its trade war with China, with a plan to curb an array of software-powered exports to China to retaliate against Beijing's latest round of rare earth export restrictions.

After dropping for four straight trading days last week with bonds getting support from safe-haven demand, Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone, rose 2 basis points to 2.58%.

Markets shrugged off data showing euro zone consumer morale ticked up to -14.2 in October from -14.9 the previous month, defying expectations for a drop to -15.0 in a Reuters poll of economists.

EYES ON US INFLATION

The focus this week across global markets remained on the U.S. consumer price index report, due on Friday after a delay due to the shutdown, with the lack of data in the world's biggest economy frustrating investors.

The report is expected to show that core inflation held at 3.1% in September. The outcome is not seen changing expectations that the Federal Reserve will cut rates next week.

Italy's 10-year yield IT10YT=RR was up 2 bps at 3.37%.

This left the gap between Italian and German bonds DE10IT10=RR at 77 bps, briefly falling to 76, the narrowest gap since around April 2010, according to LSEG Datastream data.

Germany's two-year yield DE2YT=RR, which is more sensitive to European Central Bank rate expectations, was up 2 bps at 1.93%.