Euro zone yields rise ahead of German business morale survey

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

By Abhinav Ramnarayan

LONDON, Aug 25 (Reuters) - Euro zone government bond yields edged higher on Tuesday ahead of a German business morale survey that is widely expected to point towards a rebound in Europe's largest economy from its worst quarter on record.

Germany's Ifo Institute is due to release its business climate index at 0800 GMT with a Reuters poll forecasting a fourth monthly rise to 92.2.

Analysts said that would be a further sign that Germany's hefty 130 billion euro ($153.40 billion) stimulus package is helping power a recovery.

"It does not take a rocket scientist to predict that the (German) economy will have one of its best quarterly performances ever in the third quarter," said Carsten Brzeski, chief economist for the euro zone at ING. "All activity indicators point to a continuing increase during the summer months." But such a turnaround would only come after Germany suffered a record 9.7% contraction in the second quarter as private consumption, investments and exports all collapsed at the height of the COVID-19 pandemic.

Germany's benchmark 10-year bond yields led the move upwards, rising 1.5 basis points to -0.48%, roughly in the middle of the August trading range of -0.56% to -0.40%.

Other euro zone bond yields across the ratings spectrum, from Netherlands to Italy, were up between 1 and 3 basis points. ,

The closely watched Italy-Germany 10-year bond yield spread was wider at 150 bps, but still comfortably below its August peak of 158 bps.

Positive noises on U.S.-China trade negotiations, with both sides reaffirming their commitment to the Phase 1 trade deal, and talk of a COVID-19 treatment are also helping stabilise sentiment and reduce demand for safe haven euro zone bonds. ,

Also on Tuesday, Germany will sell 6 billion euros of two-year bonds, while a consumer confidence reading in the United States is due later in the session. ($1 = 0.8475 euros) (Reporting by Abhinav Ramnarayan; Editing by Kirsten Donovan)