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* Eurogroup meeting fails to agree bailout deal
* IMF needs more realism from euro zone on Greece, official says
* Manchester attacks, fresh Trump allegations cap bond yields
* Euro zone private sector growth maintained in May
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Writes through)
By Abhinav Ramnarayan
LONDON, May 23 (Reuters) - Greece's short-dated government bond yields rose sharply in early trade on Tuesday after its chief creditors failed to agree a debt relief deal.
Greece needs new cash from the euro zone to avoid a default in July when it has to repay some 7.3 billion euros of maturing loans.
To get the money, the Greek parliament approved pension cuts and tax hikes on Thursday. However, euro zone finance ministers concluded that Athens still had to take further measures.
"Given the way negotiations have been progressing in the past, another delay should not come as a surprise - but this time hopes were running high (for a deal) because of the measures passed by Greece," said ING strategist Benjamin Schroeder.
The International Monetary Fund needs to see more realistic euro zone assumptions about Greece's economy and more detail on planned debt relief measures to join a bailout, IMF's European Department head Poul Thomsen said.
Yields on Greece's short-dated government bonds rose 37 basis points to 5.90 percent. Ten-year yields also rose 17 basis points on the day.
The move comes after weeks of optimism that an agreement on aid would go through. The yield on Greece's 10-year bond, which reached a peak of over 15 percent in February, fell to below 5 percent last week.
Greek government officials have been discussing with banks the possibility of returning to the bond market as early as July this year to try to meet some of its debt obligations.
The head of the Eurogroup of finance ministers, Jeroen Djisselbloem, said ministers hope to reach a deal at the next meeting on June 15.
Most other euro zone bond yields dipped in early trade as investors retreated to the safety of government bonds after a suicide attack in Manchester killed at least 22 people, and with fresh allegations emerging over possible collusion between Russia and Donald Trump's presidential election campaign.
But this move reversed as the session wore on and yields were hovering around Monday's closing levels after French and German private sector growth pointed to a solid second quarter for the euro zone's biggest economy.
Purchasing managers' index data for the euro zone as a whole also suggested sustained economic momentum.
"The risk-off environment is already erased and we are back to the levels we saw yesterday on the back of the very bright economic outlook," said DZ Bank analyst Rene Abrecht.
"We still have to see some positive signs in the economy before there is a concerted move in yields, though."
Germany's 10-year government bond yield, the benchmark for the region, was marginally higher at 0.4 percent, having hit a low of 0.37 percent in early trade.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Editing by Andrew Heavens