By Yoruk Bahceli
Aug 17 (Reuters) - German bond yields fell alongside those of U.S. Treasuries to their lowest in over a week on Tuesday, ahead of a U.S. retail sales report that is expected to add to data showing slowing economic momentum.
Risk sentiment was also dampened by a further spike in Delta variant-related COVID-19 cases and uncertainty following the Taliban's seizure of power in Afghanistan, with stock markets in Europe opening lower.
Bond market focus is on data out of the United States, with a Reuters poll expecting retail sales to have fallen 0.2% month-on-month in July from a 0.6% increase in June.
Industrial production, however, is expected to have increased 0.5% month-on-month, slightly higher than in June.
Following an unexpected sharp fall in U.S. consumer sentiment on Friday that sent bond yields tumbling, signs that consumer spending faltered by a larger degree, given a resurgent Delta variant, could prompt yet another market rethink of the U.S. Federal Reserve's taper timeline.
Data on Monday showed Chinese factory output and retail sales growth slowing sharper than expected, adding further uncertainty to the economic growth picture. That usually benefits safe-haven bond prices, which move inversely with yields.
"The focus is on U.S. data, scoured for any hints of further economic deceleration and leaving the bias for lower rates intact for now," ING analysts told clients.
Germany's 10-year yield, the benchmark for the bloc, fell nearly 3 basis points to -0.496% in early trade, the lowest since Aug. 6, tracking U.S. Treasury yields lower.
Italy's 10-year yield was down similarly to 0.54%, keeping the closely watched gap with German equivalents at 103 bps.
In the primary market, Germany is scheduled to raise 6 billion euros from the auction of a new two-year bond.
Focus will be on a speech by Fed chairman Jerome Powell following the European markets close at 1730 GMT.
(Reporting by Yoruk Bahceli; Editing by Anil D'Silva)