* Bund yields rise again to start week
* Dollar hit by reported Obama comments
* U.S. stocks set to open flat to weaker
* European stock markets lower across the board
* China trade data helps Asian markets
By Patrick Graham
LONDON, June 8 (Reuters) - More sales of German government bonds weighed on European stock markets on Monday, while the dollar retreated after a report - later denied - that President Barack Obama had expressed concern over its strength after a year-long rally.
Turkey's main stock index tumbled 6 percent and the lira hit a record low after the ruling AK Party failed to win a majority in parliamentary elections, leaving the country facing the prospect of weeks of political turmoil.
U.S. stock markets looked set to open flat to a touch lower.
The rise in 10-year Bund yields since mid-April has made them a central driver of global markets and they gained 4 basis points in the first hour of trade in Europe, rattling stock markets.
Deutsche Bank shares bucked the trend to jump 6 percent after it replaced its leadership, while German industrial output numbers offered hope of better growth in Europe's biggest economy.
The data reinforced investors' view that Europe is edging away from the deflation that has driven the interest generated by a number of mainstream debt and money market contracts below zero.
Higher yields on bonds make stocks, which hit 8-year highs in April right before Bunds started to move, less attractive, drawing more money back into the bond market. But if signs of improved economic growth are one driver of that move, that should help share values.
"Rising bond yields have triggered a correction in the Euro Stoxx 50 index of around 8 percent, close to the size during the 'taper tantrum' (fear of U.S. interest rates rises) in 2013," Goldman Sachs analysts said in a note to clients.
"This time, however, Europe is in the driving seat. Stronger growth is generating a reflationary rotation. Short-term volatility is likely, but we expect the equity market to shrug off higher yields in time."
Germany's DAX fell 0.6 percent and France's CAC by 0.8 percent, pushing the blue chip Euro Stoxx 50 index down 0.7 percent.
The dollar dropped almost half a percent against both the euro and yen after a news agency, citing an unnamed French official, reported that Obama had called the strong dollar "a problem" in conversation at the G20 summit in Germany.
The White House denied the president had made the comment, helping the currency recover, but by late morning in Europe it was still down 0.3 percent at 125.28 yen and 0.4 percent at $1.1133 per euro.
"The direction is clear: Dollar/yen will maintain its rally," said a chief trader at one Japanese brokerage. "But I think it's too early to say that the dollar will test 130 yen soon."
Asian shares earlier extended losses as weak Chinese imports increased concerns over a slowdown in the world's second largest economy, although Chinese shares, the subject of a substantial correction to this year's rally in May, were up 2 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.4 percent, while Japan's Nikkei stock index recovered some ground from early lows.
China's exports fell less than expected last month, but imports tumbled at a greater pace, stoking speculation that the economy's slowdown will give Beijing more reason to take further stimulus steps.
The downbeat Chinese import figure did little to support an oil market already concerned about oversupply after exporter group OPEC agreed to stick by its policy of unconstrained output for another six months on Friday.
Brent crude futures slipped about 0.5 percent to $63.04 a barrel, after skidding 3.6 percent last week. (Editing by Hugh Lawson)