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CORRECTED-German 10-year yields set for biggest weekly drop since August

(Corrects Italian bond yield to 0.68%. from -0.68% in paragraph 7)

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

AMSTERDAM, Oct 16 (Reuters) - Germany’s 10-year bond yield was set for its biggest weekly drop since August, while the broader market stabilised on Friday after measures to curb the growing number of coronavirus infections in Europe hit risk assets a day earlier.

A growing number of European countries imposed new measures to curb a second wave of the coronavirus this week. That pushed safe-haven German bond yields to their lowest since mid-March, when markets panicked as the pandemic first spread globally, and put an end to a rally that had pushed Italian bond yields to record lows.

German 10-year yields were set for their biggest weekly drop since the week ending Aug 21, down 7 basis points this week.

“The excess liquidity continue to support the bond market for the rest of the year, and with the possibility of a break-down in the Brexit negotiation, rising infections etc., then the safe haven buying could continue short-term,” Jens Peter Sorensen, chief analyst at Danske Bank told clients.

But markets were much more stable on Friday, with Germany’s 10-year yield unchanged at -0.61% in early trade.

U.S. President Donald Trump’s willingness to raise his offer for a coronavirus relief package to get a deal with the House of Representatives helped risk sentiment during U.S. trading on Thursday.

The sell-off in Southern European bonds led by Italy also came to a halt on Friday, with Italy’s 10-year yield down 2 basis points to 0.68%.

The risk premium Italy pays for 10-year debt on top of Germany was at 129 basis points in early trade, down from two-week highs at 136 basis points hit on Thursday.

Analysts expect Thursday’s sell-off to be temporary, given that the bond rally that pushed Italian borrowing costs to record lows until just a day earlier was due to investors pricing in additional stimulus from the European Central Bank by the end of the year - of which Italy would be a leading beneficiary.

“We do not expect yesterday’s widening to gain momentum, precisely because of these technical supportive factors,” UniCredit analysts said in a client note.

It is a fairly data-light day in Europe on Friday, with the final September inflation reading for the euro zone due at 0900 GMT. (Reporting by Yoruk Bahceli, Editing by William Maclean)

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