* Bund yields down 7 bps this week, biggest weekly fall since Aug
* Italian yields set for 4th straight week of rises
* Split between core and peripheral EZ opens up
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices, adds latest news)
By Dhara Ranasinghe
LONDON, Nov 15 (Reuters) - Sovereign borrowing costs in Germany and France were set on Friday for sizeable weekly declines, in contrast to southern European countries, whose debt has come under heavy selling pressure again this week.
Ten-year bond yields in higher-rated euro zone economies were a touch higher the day after White House economic adviser Larry Kudlow said Washington was getting close to a trade agreement with China.
U.S. Commerce Secretary Wilbur Ross also said on Friday there would be a call between U.S. and Chinese officials later in the day as both sides continue to hammer out a 'phase one' trade pact.
That lifted investor confidence and hurt safe-haven assets.
Germany's 10-year Bund yield was last up 1.1 basis points at -0.34%, off levels hit on Thursday that were its lowest for more than a week.
But it was down 7 bps on the week, set for the biggest weekly fall since late September. Dutch 10-year bond yields were down a similar amount; French yields were 5 bps lower .
Analysts said a recent selloff in top-rated bonds had gone too far, given uncertainty about the direction of U.S.-China trade talks, while recent data showed world economic growth remains weak.
Data on Friday confirmed that euro zone inflation had slowed in October.
Bond yields in southern Europe, while lower on Friday, were set to end the week higher, a sign that sentiment towards the periphery has turned.
"In general, there has been risk aversion in recent days and a shift to core bond markets from the periphery," said Daniel Lenz, a rates strategist at DZ Bank.
"That's because investors are taking profits before year-end, but also because once Bunds get attractive, investors start to shift money away from the periphery."
Ten-year Italian bond yields were down 10.4 bps on the day at 1.33%, narrowing the gap over safer German Bund yields to 165 bps from around 173 bps the previous day, the widest since late August. But Italian yields are 11 bps higher on the week and set for a fourth straight week of rises.
Spain's 10-year yield gap over Germany is at its widest since mid-September at 79 bps, reflecting concern that a possible coalition government of the Socialist and far-left Podemos parties will spend heavily.
After a rally in southern European bond markets this year, investors are locking in profits before year-end book closing, traders said. A growing sense that the European Central Bank is unlikely to deliver further stimulus soon has also soured sentiment towards peripheral debt markets.
"Volumes are very thin so every market movement is accentuated, but we are seeing a return to the past, with the peripheral countries - Italy but also Spain - which have become detached from the 'core' due to their internal political problems," said one Italian government bond trader.
(Reporting by Dhara Ranasinghe; additional reporting by Valentina Za; editing by Larry King and Timothy Heritage)