* German industrial orders up after 2 months of falls
* But small rise points to lacklustre growth
* German 10-year yield edges away from zero
* Pessimism on U.S.-China trade talks weigh
* Market watches for EC forecasts on Italy deficit
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Abhinav Ramnarayan
LONDON, May 7 (Reuters) - Germany’s 10-year bond yields hovered near the zero percent mark on Tuesday as industrial orders from Europe’s largest economy improved slightly, but not enough to encourage investors to leave the safety of euro zone government debt.
The March orders figures marked an end to two months of steep declines, but were weaker than expected, pointing to lacklustre growth.
Worries on the euro zone economy have centred around Germany’s export-oriented economy, which has had a rough few months and could be in the line of fire should U.S. President Donald Trump turn his attention to Europe in his efforts to redraw trade relations with the world.
Bond yields have fallen sharply this year on expectations the European Central Bank would need to ease policy further to kickstart a moribund economy.
On Tuesday, borrowing costs across the single currency bloc rose initially on the news, but the move didn’t last, most likely because of the weak nature of the data.
Germany’s 10-year bond yield rose a basis point to 0.02 percent in early trade, before returning to 0.01 percent, more or less flat on the day.
Other high-rated euro zone bond yields were flat to a touch lower on the day.
“We are still in the downward trend channel. As long as there is no major positive news, I don’t see the chance of a breakthrough and we will remain on low levels or drop further,” said DZ Bank rates strategist Daniel Lenz.
He added that news of faltering trade talks between the United States and China also put downward pressure on yields.
Top U.S. trade officials said on Monday that China backtracked on substantial commitments it made during trade talks with the United States, prompting President Donald Trump to impose additional tariffs on Chinese goods slated to go into effect on Friday.
Later on Tuesday, the European Commission is due to release a set of forecasts for the year and all attention will be on what expectations are for Italian public spending.
According to Italian newspaper La Republicca, the Commission will forecast a 2.6 percent deficit for Italy this year, which could reignite a debate that raged through the latter half of last year between Brussels and Rome.
“A forecast of 2.6 percent would be moderate but higher than the compromise the two sides found last year, and when you add the negative political stance in Italy at the moment, this could affect BTPs,” said Lenz.
For the moment, Italian government bond yields remain unaffected, with the 10-year yield flat at 2.57 percent. (Reporting by Abhinav Ramnarayan Editing by Andrew Heavens)