Bund yields set to break five-week falling streak on hopes for tariff relief

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Expectations for a less painful impact of tariffs supports yields

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German 2-year yields set to snap 6-week falling streak

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Analysts say Trump will eventually back down on China

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US Treasury yields flat after falling on Thursday

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Focus also on ECB speakers

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By Stefano Rebaudo

April 25 (Reuters) - Bund yields were set to end the week higher, snapping a five-week falling streak, as signals that the United States may reduce tariffs on Chinese imports eased concerns of a trade war and its adverse impact on the global economy.

China is considering exempting some U.S. imports from its 125% trade duties and is asking businesses to identify goods that could be eligible.

Meanwhile President Donald Trump said that trade talks between the U.S. and China are underway, pushing back against Chinese claims that no discussions have taken place.

Euro zone borrowing costs leapt while traders cut bets on future European Central Bank rate cuts on Wednesday after the Wall Street Journal reported the White House was mulling slashing China tariffs.

Germany's 10-year yield, the euro area's benchmark, rose 3.5 basis points (bps) to 2.48% and was on track for a weekly rise of 1.5 bps.

"For China, our view remains that this is a battle that Trump cannot win and will eventually need to back down," said Mohit Kumar, chief strategist Europe at Jefferies.

"But the delay in negotiating a deal will have a negative impact on both U.S. and China growth," he added.

U.S. Treasury long-term yields edged down in London trade -- with the 10-year down 0.5 bps -- after declining on Thursday on tentative hopes of lower-than-feared U.S. tariffs and the possibility of an interest rate cut by the Federal Reserve in June.

Money markets priced in a European Central Bank deposit facility rate at 1.62% in December, up from 1.55% late Tuesday but below the 1.72% level recorded shortly before last week's ECB policy meeting. They also fully priced a 25 bps cut in June.

Barclays sees the 1.5% terminal rate market pricing as a new floor after flagging that some ECB speakers echoed last week's dovish meeting with a focus on the potential disinflationary impact of tariffs.

ECB policymaker Olli Rehn on Thursday played up the chance of an interest rate cut in June, while Robert Holzmann said euro zone rates should be held until more clarity emerges on the path of U.S. tariffs and European Union countermeasures.

Germany's 2-year yield, more sensitive to expectations for ECB policy rates, was up 6 bps to 1.74% on Friday. It was on track for a weekly rise of 6 bps after six straight weekly falls.

The yield spread between French and German 10-year bond yields -- a market gauge of the risk premium investors demand for holding French assets - dropped to 71.5 bps, in the middle of its trading range since early June.

The gap between Italian and German 10-year bond yields stood at 110 bps. (Reporting by Stefano Rebaudo, editing by Sharon Singleton)