(Updates with later market movements)

By Harry Robertson and Stefano Rebaudo

April 7 (Reuters) -

Euro zone bond yields rose in volatile late European trading

on Monday as markets digested headlines on tariff negotiations

and investors wait to see whether U.S. President Donald Trump

will budge on his sweeping tariffs.

European yields had fallen sharply in early trading as

investors

ditched stocks

and moved into safe-haven assets such as government bonds,

the Japanese yen and Swiss franc, while ramping up bets on rate

cuts.

Throughout the day yields then rose as stocks retraced

some of their losses, after officials said the

European Union

was not immediately retaliating and was willing to

negotiate with the United States on the tariffs.

Yields shot higher towards the end of trading in Europe

after a report said a Trump adviser had said the President may

be considering a pause in tariffs. They then fell back slightly

when the White House called that report "fake news".

Germany's 10-year bond yield was last up 4

basis points (bps) at 2.657% after earlier falling to 2.479%,

its lowest since March 4. Yields move inversely to prices.

European Commission President Ursula von der Leyen told

a press conference in Brussels that the EU stood ready to

negotiate a "zero-for-zero" tariff pact for industrial goods,

while other officials made similar comments throughout the day.

"The key message that we're just learning right now is

that the EU is not retaliating right away, that they're trying

to calm the tensions a bit," said Michael Weidner, co-head of

global fixed income at Lazard Asset Management.

"And I think that's a very wise move, because nobody is

set to profit from a further escalation."

German 2-year government bond yield, which is

sensitive to expectations for European Central Bank policy

rates, was last down 6 basis points (bps) at 1.801%.

Earlier in the session it dropped sharply to 1.665%, its

lowest level since early October 2022, as investors moved to

price in deep rate cuts from the ECB.

Money markets priced in an ECB deposit rate at 1.7% in

December, pointing to 80 bps of rate cuts,

compared to 1.9% last week before Trump announced U.S. tariffs.

They also discounted a roughly 90% chance of a 25 bps

cut next week.

Italian government bonds underperformed their peers in the

euro area as investors perceive them as carrying higher risk.

Italy's 10-year yield rose 10 bps to 3.865%.

The yield gap between BTPs and Bunds - a gauge of

risk premium investors ask to hold Italian debt - reached 126

bps, its highest since November 27, and closed at 117 bps.