UPDATE 2-Euro zone bond yields dip, reflecting caution about U.S. stimulus

* Core yields down 1-2 bps in another quiet session

* Italian 10 and 30-year yields drop to new record lows

* Euro zone periphery govt bond yields: tmsnrt.rs/2ii2Bqr (Adds latest prices, Spanish, Portuguese yields & chart)

LONDON, Oct 9 (Reuters) – Euro zone yields fell on Friday as investors remained cautious, even though renewed hopes for a U.S. stimulus package lifted sentiment in other markets.

Italian bond yields extended their descent driven by a range of factors to yet more record lows.

Stocks rallied after U.S. President Donald Trump said on Thursday talks with Congress had restarted on targeted fiscal relief, after he had called off negotiations earlier this week.

Investors are also starting to bet that Joe Biden, Trump’s challenger in the Nov. 3 presidential election, will win, potentially leading to a bigger stimulus package.

But core euro zone bond markets were quiet, with yields dropping. Euro zone yields have held to tight ranges in recent weeks and volatility has been low, which analysts attribute to a wave of central bank asset purchases that has crushed price action.

On Friday, the 10-year German bond yield slipped 1 basis point to -0.538% while other core yields were 1-2 bps lower .

Analysts said investor reluctance to dump safe-haven government bonds was a sign that momentum behind recent asset-price rallies was stalling.

Mizuho analysts said the resilience of the bond market was “another sign that the momentum behind further risk-on is waning.”

Yields in southern Europe also headed lower, with the Italian 10-year and 30-year plummeting to new record lows. The 10-year yield was last down 6 basis points at 0.669% . The 30-year yield, which started 2020 at 2.5%, weakened 7 basis points to 1.601%.

Italian bonds have benefited from a vast wave of European Central Bank stimulus that has shored up confidence about the sustainability of public debts, as well as from reduced political uncertainty in Rome and investors grabbing what remains of positive-yielding government debt.

Spanish 10-year yields fell 4 basis points to 0.166% , while Portuguese 10-year yields were 3 basis points lower at 0.18%.

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