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German bond yields fall for a third day on dollar weakness

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

LONDON, Aug 18 (Reuters) - German government bond yields fell for a third consecutive session on Tuesday with European debt a major beneficiary of a broadly weaker dollar fuelling demand for fixed income assets elsewhere.

With little in terms of major data this week except flash European PMI estimates on Friday, investors resumed the hunt for alternative safe-haven assets to U.S. Treasuries.

In early London trading, benchmark German government debt yields edged one basis point lower to minus 0.467%, a three-day low. Other core European debt yields, including on French and Belgian bonds, also slipped.

The dollar skirted two-year lows against its rivals on Tuesday as a deadlock on further policy stimulus and concerns about escalating tensions between Washington and Beijing cast a shadow over the greenback’s medium-term outlook.

The prospects of a weakening dollar and negative inflation-adjusted yields thanks to the Fed’s unprecedented stimulus measures in recent months have dented demand from investors in Japan and Europe in recent months.

Net bearish bets on the U.S. dollar grew to their largest since May 2011 last week and spot trade in recent days suggests the position has only grown further since.

Strategists at Mizuho noted the dollar’s weakness has seen European, British and Japanese bonds rally, suggesting “this was another leg of the ongoing real money flow out of dollar assets”.

On Tuesday, British two-year bond yields fell 2 bps to minus 0.053%, the lowest level in nearly two weeks.

Even peripheral European bonds such as Italian debt have rallied in recent weeks with the closely watched Italy-Germany yield spread, an indicator of risk appetite towards the euro zone, dropping below 144 basis points on Monday, the tightest level since end-February.

It was trading at 146 bps on Tuesday. (Reporting by Saikat Chatterjee; Editing by Kirsten Donovan)

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