April 26, 2017 / 7:30 AM / 4 months ago

UPDATE 3-Trump tax reform and ECB keep euro zone bond markets on edge

* German Bund yield briefly touches one-month high

* Trump tax plan could revive reflation bets

* ECB rate outlook also keeps investors on edge (Updates prices)

By Dhara Ranasinghe

LONDON, April 26 (Reuters) - Most euro zone government bond yields crept up on Wednesday, with U.S. President Donald Trump set to release a tax reform plan that could help to revive reflation bets.

A report on Tuesday from Reuters that ECB policymakers see scope for sending a small signal in June towards reducing monetary stimulus also weighed on bond market sentiment, with German Bund yields briefly touching one-month highs.

U.S. officials said Trump will release on Wednesday a plan to cut business taxes sharply and discount the rate on corporate profits brought back into the country.

Separately, the threat of a U.S. government shutdown this weekend receded after Trump backed away from demanding Congress include funding for his planned border wall with Mexico in a spending bill.

"Trump is stealing the show today," said Martin van Vliet, senior fixed-income strategist at ING. "The talk about his tax plans are keeping markets busy, so we see euro zone bonds moving with Treasuries."

U.S. and European bond yields rose along with stock markets after Trump's election in November as investors bet that the new president's economic policies would boost growth and inflation.

But so-called reflation trades have been scaled back in recent months as investors await details of those policies.

Germany's benchmark 10-year Bund yield touched a one-month high of 0.41 percent on Wednesday before pulling back to about 0.35 percent, slightly lower on the day but still up by about 15 basis points a week ago.

Other bond yields across the euro area were 1-5 bps higher on the day.

On Tuesday, regional bond markets were hit by heavy selling after a Reuters report citing three sources on and close to the European Central Bank's Governing Council saying that, with the threat of a run-off between two eurosceptic candidates in France averted and with the economy on its best run in years, there may be tweaks to the ECB's opening statement in June.

The ECB is scheduled to hold a policy meeting on Thursday, with the focus on the potential for a scaling back of monetary stimulus in the months ahead.

"Tomorrow's ECB meeting will probably be viewed from a perspective of preparing the ground for tangible action in June, probably in the form of an adjustment of the forward guidance," said Commerzbank rates strategist David Schnautz.

"More tomorrow looks unlikely as the ECB may not view the French presidential election as much of a 'done deal' as the market."

Centrist Emmanuel Macron and far-right eurosceptic Marine Le Pen face each other in the final round of voting in France's presidential election on May 7.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Editing by Mark Trevelyan and David Goodman

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