(Recasts, adds background)
By Harry Robertson and Stefano Rebaudo
LONDON, June 20 (Reuters) - Euro zone bond yields dipped on Tuesday as they reacted to a bigger-than-expected fall in German producer prices and concerns about a slowdown in the global economy.
A marginal easing in interest rates in China, unlikely to offer a solid boost to reverse a growth slippage, weighed on stocks, supporting bids for safe-haven assets.
Germany's 2-year bond yield, sensitive to policy rate expectations, fell 5 basis points (bps) to 3.16%.
Long-dated bond yields dropped more as central banks were transparent in their determination to tighten monetary policy, while investors worried about the adverse impact on the economy which might lead to significant rate cuts in the future.
Germany's 10-year bond yield, the benchmark for the eurozone, was last down 12 bps at around 2.40%.
The gap between German 10-year and 2-year yields hit -76.4 bps, showing the deepest inversion of the yield curve since March 10, when fears of a banking crisis started disrupting financial markets.
"This morning we have seen a bit of a recovery" in bond prices, said Christoph Rieger, head of rates research at Commerzbank. When a bond's price rises, its yield falls.
Data on Tuesday showed that the prices German producers receive for their goods and services fell 1.4% in May compared to April, a much bigger drop than the 0.7% fall economists had expected.
Rieger said the figures were "probably adding a little bit to the momentum that we are seeing this morning".
He added: "It fits the picture that we're seeing a bit of a retracement. But is this the most important number? No."
The German data adds to signs that euro zone inflation is cooling, after figures released earlier this month showed that inflation in bloc eased to 6.1% in May from 7% in April.
However, inflation remains well above the European Central Bank's 2% target, meaning more rate hikes are anticipated.
The ECB could continue raising interest rates in September, given the stubborn nature of inflation, Lithuanian policymaker Gediminas Simkus said on Tuesday.
ECB board member Isabel Schnabel said on Monday it's better to "err on the side of doing too much rather than too little".
Italy's 10-year bond yield fell 10 bps to 4.03%.
The closely watched gap between Italian and German 10-year bond yields widened to 162 bps, after falling to its lowest since April 2022 last week below 150 bps.
Traders expect ECB rates to peak at above 3.9%, from a current level of 3.5%. Those expectations are up from around 3.7% in early June.