UPDATE 1-Euro zone bond yields rise; focus on U.S.-China trade tensions

Euro zone government bond yields rose on Wednesday, reversing some of the previous day's falls as media reports eased worries about escalating U.S.-China trade tensions. China is still open to agreeing a partial trade deal with the United States, Bloomberg reported, citing an official with direct knowledge of the talks, despite the recent blacklisting of Chinese technology firms.

European shares rallied and U.S. stock futures pointed to a firm open for Wall Street, taking the shine off safe-haven debt. Ten-year bond yields across the euro area were 2-3 basis points higher on the day .

Germany's benchmark 10-year Bund yield was up 3 bps at -0.57%, keeping within recent ranges. "There's slightly better news on the China side so that's helping sentiment," said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.

"So some of the negativity around trade talks has ebbed and there is a better tone to equity markets." High-level trade talks between China and the United States are expected to take place on Thursday and Friday.

The sell-off in bond markets followed a rally on Tuesday and on another day of fresh supply - which tends to put upward pressure on yields. "There's been so much negative news and mixed headlines ... If you wrap these together and (you know that) global growth is heading one way, you then see the market reposition and try to take some profit off the news," said Matthew Cairns, fixed income strategist at Rabobank.

The trade war is a key risk to global growth. Bond yields typically fall on lowered growth and inflation expectations. "You take profit and yields move higher, then you head back in because you're pretty confident that we're going to go lower anyway," Cairns added.

Portugal sold 750 million euros of 15-year bonds at an auction, while Ireland said it had mandated banks to sell more of its green bond. Italy opened books on Wednesday for its first dollar-denominated bond sale in nearly a decade, with early investor interest exceeding $10 billion.

The southern European country is selling three dollar bonds of five, 10 and 30 years' maturity in a deal that has been more than a year in preparation. Investors will also eye the minutes of the Federal Reserve's September meeting due for release later on Wednesday.

Focus is on the U.S. central bank's next policy decision as Chairman Jerome Powell flagged openness to further rate cuts and said the Fed would expand its balance sheet to ensure money markets functioned smoothly. ($1 = 0.9107 euros)

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