Euro zone bond yields dip as trade deal excitement fizzles out

May 16 (Reuters) - Euro zone government bond yields dropped on Friday, backing further away from multi-week highs hit earlier this week as investors awaited further trade developments after risk appetite sparked by a de-escalation in the Sino-US trade war faded.

German 10-year bond yields DE10YT=RR, the benchmark for the euro zone bloc, fell 3.3 basis points to 2.59%, but were still headed for their fourth consecutive weekly rise, reflecting the investor push away debt. Bond yields move inversely to prices.

The United States announced trade deals with the UK and China this month, allaying fears of a recession caused by the trade war, which lessened demand for safe-haven assets that sent U.S. and euro zone yields to one month highs this week.

However, a raft of soft data on Thursday indicated the world's largest economy slowed last month, prompted traders to up their bets on interest rate cuts from the Federal Reserve and sent U.S. 10-year Treasury yields US10YT=TWEB 7 bps lower.

The yield on the U.S. 10-year Treasury bond was down 4.7 bps at 4.40% in Europe on Friday.

Germany's two-year bond yield DE2YT=RR, which is more sensitive to European Central Bank rate expectations, was down 1.8 bps at 1.865%.

Italy's 10-year yield IT10YT=RR fell 3.4 bps at 3.6%, and the gap between Italian and German bunds DE10IT10=RR narrowed 1.5 bps to 100.7 bps.