(Updates at 1614 GMT)

By Stefano Rebaudo

Nov 12 (Reuters) - Euro zone yields were steady on

Tuesday, having earlier dropped to their lowest in over a week

after a survey showed German investor morale worsened in

November on concerns that U.S. President-elect Donald Trump's

proposed policies could hurt Europe.

The uncertainty unleashed by Trump's election victory and

the collapse of the German government sapped investor morale

this month, the ZEW Institute's survey found.

"Investor sentiment fell notably in November in response to

Trump's election and the prospect of US tariffs, which will hit

Europe's already struggling manufacturing sector," Nomura

economist Andrzej Szczepaniak said.

Germany's 10-year government bond yield, the

benchmark for the euro area, touched its lowest since Oct. 30 at

2.299%. It was last little changed on the day at 2.331%.

Protectionist policies from the incoming U.S. administration

will hamper global growth, and Europe must be better prepared

than in 2018 when Trump's previous administration took similar

steps, European Central Bank policymakers warned.

Money market traders were pricing in around 31 basis points

of easing from the ECB at the December meeting, implying around

a 25% chance that they cut rates by 50 bps.

Germany's 2-year yield, which is sensitive to

expectations for policy rates, fell to 2.097%, its lowest since

Oct. 24, and was last down 1 bp at 2.127%.

The political crisis in Germany is also in the spotlight,

with investors aware it will take time to understand whether a

new government will boost public spending to stimulate the

economy.

Germany's Social Democrats, Greens and conservatives have

proposed Feb. 23 as a date for a new election.

The conservative Friedrich Merz, who is in pole position to

become chancellor, has set two prerequisites for discussing a

reform for the so-called debt brake: having conditions for the

money to be invested in pro-growth programmes and social

welfare.

"Absent an even larger economic shock there are still

reasons to be somewhat skeptical about a large easing in German

fiscal policy under a new government," said Matteo Mamprin,

rates strategist at JP Morgan, who sees the recent "term premium

(on Bund swap) repricing quite excessive."

Germany's 10-year asset swap spread (ASW)

was at -2.5 bps after hitting -7.45 bps last week, its lowest

since at least 2003, also on concerns about a potential increase

of Bund supply.

Swap spreads, the difference between the 10-year government

bond yield and the 10-year swap rate, reflect risk appetite in

the broader financial market while being a gauge of an issuer's

credit quality.

Swap spreads on German bonds have been tightening since

March 2023 - with the 10-year at around 80 bps - when the ECB

started to unwind its portfolio of assets, increasing the supply

of government bonds in the market.

Italy's 10-year government bond yield, the

benchmark for the euro area's periphery, was up 3 bps at 3.623%,

after earlier hitting 3.57%, its lowest since Oct. 30.

(Reporting by Stefano Rebaudo, additional reporting by Samuel

Indyk; Editing by Mark Potter and Ros Russell)