UPDATE 1-Euro zone bond yields extend climb on trade talk hopes

* German yields edge higher and away from record lows

* Some ECB officials have raised doubts about stimulus package

* Italian bonds let off some recent gains

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Adds analyst comment, move in gilt yield, auction results)

By Tommy Wilkes and Yoruk Bahceli

LONDON, Sept 5 (Reuters) - Euro zone bond yields rose on Thursday as investors welcomed signs of progress in resolving the U.S.-China trade war, and seized on recent doubts about whether a European Central Bank stimulus package next week can match expectations.

After a strong price rally in August, euro zone bonds have stumbled in recent days.

Reduced political risk, from the approval of a coalition government in Italy to the UK parliament's battle to avert a no-deal Brexit, have helped improve investors' mood, reducing demand for safe-haven government bonds.

On Thursday, China's commerce ministry said Beijing and the United States agreed to hold high-level trade talks in early October in Washington, easing fears that the escalating trade war will trigger a global recession.

Comments by ECB policymakers on Wednesday also appeared to dampen expectations for aggressive stimulus at next Thursday's ECB meeting.

"Investors are a little bit concerned that the ECB won't act as expansionary as expected," said Daniel Lenz, a rates strategist at DZ Bank.

Lenz said that the market would likely struggle for direction until the ECB meeting either disappointed investors or sparked another leg in the rally.

He also noted that this week's ECB comments fit into a pattern of policymakers raising expectations, before dampening them in the weeks preceding a meeting to give themselves room not to disappoint on the day.

The 10-year German Bund yield rose over 6 basis points to -0.61%, its highest in almost two weeks and above Tuesday's record lows of -0.743%.

UK gilt yields lead the rise in Europe as fears of a disruptive no-deal Brexit receeded, with 10-year yields jumping 8 bps to 0.57%.

Italian bond yields also rose after falling all week as investors welcomed the formation of a government that could prove to be more fiscally responsible than the last.

The 10-year Italian yield rose 7 bps to 0.88%, off Wednesday's record low of 0.803%.

Analysts say that if after the recent plunge in yields, many international investors remain underweight Italian bonds and with the yields relatively attractive, more could pile back in.

DZ Bank targets the Italian/German 10-year bond yield spread at 120 bps -- 30 bps lower than current levels.

However, the picture for Italian bonds could quickly turn if the ECB's stimulus package underwhelms on Sept. 12, as Italy is expected to see the biggest impact from a large stimulus package.

"What makes BTPs vulnerable to me is that some ECB members are unwilling to re-open quantitative easing. As we broke below 150 bps [on the spread] yesterday, it makes sense to have some profit-taking," said Natixis fixed income strategist Cyril Regnat.

Analysts say that despite the bond sell-off over the last two days, the potential of the ECB not restarting asset purchases has not been sufficiently priced in yet.

Heavy bond supply also pushed yields up. Spain sold over 4 billion euros of inflation-linked, medium and long-dated bonds , while France sold over 10 billion euros of medium and long-dated bonds.

(Reporting by Tommy Wilkes and Yoruk Bahceli; Editing by Toby Chopra)