* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
LONDON, Aug 4 (Reuters) - Italian government bond yields fell to their lowest since March on Tuesday and the country's debt was poised for its best session since July 20, while safe-haven paper rallied as risk appetite took a hit in Europe.
Europe’s Stoxx 600 index was in the red after a strong rally on Monday.
European assets have become more appealing to investors as a 750-billion-euro ($882.68 billion) European Union recovery fund boosted sentiment towards the bloc and U.S. coronavirus cases surged.
Underscoring tensions impacting Washington, China said on Tuesday it would retaliate if the United States persisted with "hostile action" against Chinese journalists, who may be forced to leave in coming days if their U.S. visas are not extended.
German 10-year government bond yields were flat at -0.55%, having hit 2-1/2 month lows of -0.56% last week. They fell 9 basis points last week.
Italy's 10-year yield, down 5.5 bps on the day, fell to its lowest since the beginning of March at 1.017%.
"Lower risk appetite has boosted demand for Bunds, also this morning, and peripheral bonds are following as ... there’s a lot of central bank excess liquidity available," Luca Cazzulani, bond analyst at UniCredit, said.
Focus was also on the European Central Bank's breakdown of its bond purchases, released late on Monday, which showed Italy continued to benefit from oversized transactions in June and July under the ECB's emergency and conventional bond buying programmes.
Italy is the one large euro zone country where the ECB is purchasing more bonds than its share of the capital key, a quota based on how much money each country has paid into the bank.
The data showed the ECB now holds 9.95 billion euros of Greek government bonds, or 13.5% of the outstanding market, according to Reuters calculations.
In the primary market, Austria sold 1.15 billion euro of bonds due 2024 and 2030 via auction. ($1 = 0.8497 euros) (Reporting by Yoruk Bahceli and Stefano Rebaudo; Editing by Kirsten Donovan, John Stonestreet and Timothy Heritage)
