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Euro zone yields hold steady near recent lows on COVID concerns

* German 10-year yield little changed near -0.52%

* ECB policymaker says recent euro rally is a worry

* Euro zone periphery govt bond yields

LONDON, Sept 28 (Reuters) - Euro zone bond yields held steady in early trading on Monday as investors balanced optimism about signs of a strengthening economic recovery in China with a rising tally of COVID-19 cases that could lead to more lockdown measures.

After rattling around six-week lows for much of last week, German bond yields began this week in a similar fashion, with analysts saying that much of the dovish policy tone heard from European Central Bank policymakers already priced in.

On Sunday, ECB policymaker Ignazio Visco said a recent strengthening in the euro’s exchange rate was a worry and would warrant a reaction from the central bank if it dragged inflation further away from its goal.

“With souring risk sentiment and recent ECB ‘dovespeak’, EUR rates have already a degree of easing imbedded in them,” ING analysts said in a research note.

“A weak inflation number and further dovish soundbites at the ECB watchers’ conference would only reinforce this sentiment, but the question is what is there left to price?”

The benchmark 10-year German bond yield stood at -0.517% , marginally up on the day, while other core euro zone bond yields were similarly little changed at the start of the week.

Commerzbank analysts said the -0.50% mark had “turned from support to resistance”.

Tuesday sees euro zone consumer confidence and industrial sentiment data for September, with traders keen to see whether the region’s economic recovery has stalled or whether it is improving.

Elsewhere Italian bond yields edged slightly lower, with the 10-year at 0.89%, not far from last week’s low of 0.827%, which was an 11-month low.

Other peripheral debt market yields also weakened 1-2 basis points .

Another busy week for new bond issuance supply looms, with Germany, France and Italy all seeking to raise more funding. (Editing by Gareth Jones)