* Apple revenue warning fuels flight to safety
* 10-year German bund holds close to two-year lows
* Spain opens issuance with 5 billion-euro sale
* Italian 10-year bond yields jump 13 bps (Updates pricing, adds quote, colour on Italian bonds, Spanish bond sale)
By Virginia Furness
LONDON, Jan 3 (Reuters) - German government bond yields held near their lowest in two years on Thursday after a rare revenue warning by U.S. tech giant Apple fuelled a flight to global safe assets amid renewed concerns about slowing Chinese growth.
Apple’s fourth-quarter revenue drop and the ensuing sell-off in global equities suggested that an economic slowdown in China was worse than many expected, casting a shadow over the outlook for corporate profit growth this year.
The yield on Germany’s 10-year government bond hit its lowest in over two years on Wednesday as investors began pricing in much less chance the European Central Bank and the U.S. Federal Reserves would raise interest rates. Business surveys in China and the euro zone underlined worries about global growth.
Germany’s 10-year bond yield was most recently at 0.177 percent, up about half a basis point on the day, from a low of 0.148 percent earlier in the session. Other high- grade euro zone bond yields also turned positive, having started the session lower.,.
“The market is pushing back even further the rate hike for the European Central Bank, now to the middle of 2020, and this is backed up by the latest run of data,” said Rainer Guntermann, rates strategist at Commerzbank.
Money markets are now pricing in less than a 30 percent chance of a 10-basis-point rate increase in 2019.
Guntermann said he did not expect the rally to continue, but said the downside risk of weak data would not lead to an “imminent reversal” in bund yields.
In the periphery, Italian government bond yields rose the most, gaining 12 basis points. Portugese and Spanish yields were up to three basis points higher.
Analysts said the rise in Italian yields was caused by several factors, including the equity-led weakness, a Spanish bond auction and improving liquidity.
“The past few sessions have been very low liquidity and that is now picking up,” said Jan von Gerich, rates strategist at Nordea. “The euro area is struggling even more than it looked, and Italy should suffer more.”
Italy’s 10-year government bond yield was on track for its biggest one day rise in almost a month, up 13 basis points on the day to 2.817 percent, though still far off the mid-November highs of 3.71 percent.
Analysts are also looking to Italian preliminary inflation data on Friday for evidence as to the rate of Italian growth.
“If we see another contractory print, it would underline the significant possibility that GDP growth was negative in Q4, which means Italy was in recession of the second half of last year,” said Richard McGuire, rates strategist at Rabobank.
Spanish bonds were up to three basis points higher following its sale of 5 billion euros of bonds at auction.
Reporting by Virginia Furness, editing by Larry King