UPDATE 1-Euro zone bond yields inch down, French/German bond yield gap above 50 bps

Most government bond yields in the euro area inched lower on Monday, reflecting weaker stock markets, but held above lows hit last week, in a sign that investors' worst fears about the global growth outlook have abated for now.

Having fallen on concern about the outlook for the world economy in the first two trading days of 2019, European and U.S. bond yields jumped on Friday after data showed stronger-than-expected U.S. jobs growth in December and Federal Reserve chief Jerome Powell said the Fed will be patient and sensitive to market risks.

There was some support for euro zone bonds on Monday after European stock markets weakened as caution set in ahead of Chinese/U.S. trade talks. Still, the general tone was one of reflection after last week's yield swings, analysts said.

In Germany, the euro zone's benchmark bond issuer, 10-year bond yields dipped one basis point on the day to 0.20 percent -- holding above more than two-year lows close to 0.15 percent hit last week.

"From a very short-term perspective, it's not all complete doom and gloom, but at around 20 basis points, the Bund yield levels suggest there is a lot of scepticism about the economic outlook, and we have had weaker data from Germany again today," said DZ Bank rates strategist Christian Lenk.

Data showed German industrial orders fell more than expected in November.

The market's worst fears about the global economic outlook, which have led to aggressive repricing of the rates outlook, nevertheless appear to have subsided.

Money market futures in the euro zone pointed to a roughly 45 percent chance of 10 basis point rate hike by the European Central Bank by the end of 2019, up from less than a 30 percent chance last week.

Most yields on higher-rated bonds in the bloc were slightly lower on the day except for France, where 10-year bond yields were a touch higher at 0.70 percent.

That pushed the gap between French and German bond yields above the 50 bps barrier and its widest level since April 2017 .

French bonds have underperformed their German counterparts in recent weeks following violent street demonstrations in France that have prompted the government to raise public spending.

"The protests are definitely what got the move in the spread going in the first place, but there's also supply dynamics coming into play," said KBC rates strategist Mathias van der Jeugt.

The Netherlands, Austria, Germany, France and Italy are all expected to sell bonds soon, in what is expected to be one of the busiest auction weeks of the year.

(Reporting by Dhara Ranasinghe; Editing by Catherine Evans)

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