June 30 (Reuters) - Euro zone government bond yields

edged down on Monday as investors awaited inflation data from

German states and Italy later in the session.

Meanwhile, German data showed that retail sales and import

prices fell short of expectations in May.

Trade talks are also in the spotlight after Canada scrapped

its digital services tax targeting U.S. technology firms in a

bid to advance stalled trade negotiations with the United

States.

The yield on Germany's 10-year bond, the euro

area's benchmark, fell 1.5 basis points (bps) to 2.58%, after

hitting 2.605% on Friday, its highest level since May 26.

The 30-year yield was down 0.5 bps at 3.09%,

while the yield on the 2-year - more sensitive to expectations

for European Central Bank policy rates - dropped one bp to

1.85%.

The German yield curve steepened last week, with the spread

between 10-year and 2-year yields recording the

first weekly rise in a month.

Markets have priced in an ECB terminal rate roughly

unchanged at around 1.75-1.80%, while yields on longer

maturities rose on expectations of a significant increase in

German fiscal spending.

Italy's 10-year government bond yield fell 1.5

bps to 3.50%, with the spread between BTPs and Bund yields at

90.5 bps. The gap hit 84.20 bps earlier this month, its lowest

level since March 2015.