LONDON- Italy led a fall in southern European bond yields on Monday, supported by expectations for hefty central bank stimulus and hopes that the world economy will bounce back quickly from the COVID-19 shock.

Global stock markets rallied to four-week highs as investors bet that a revival in Chinese activity would boost global growth, even as surging coronavirus cases delayed business re-openings across the United States.

Data showed orders for German industrial goods rose by 10.4% in May, rebounding from their biggest drop since records began in 1991 the previous month. 

The generally upbeat tone in world markets lifted sentiment in lower-rated euro zone bond markets, which analysts said remained bolstered by the European Central Bank's asset purchase scheme.

"There is bigger risk of bond yields falling than there is of them rising," said Antoine Bouvet, a senior rates strategist at ING in London.

Italy's 10-year bond yield fell 4 basis points to around 1.29%-- pushing towards more than three-month lows hit last week. That squeezed the gap over benchmark German Bund yields to around 171 bps.

Spanish and Portuguese 10-year bond yields were down 1-2 bps each, also holding near lows hit last week that marked the lowest levels since March.

Safe-haven 10-year German bond yields gave up early rises and were steady at around -0.44%, in a sign of broad support across euro zone debt markets.

In contrast to the German industrial orders data, other data showed euro zone retail sales fell in May. 

In the near-term, there was little to drive bond markets, said analysts, noting a slowing in new supply this week as well.

"Expectation management and political haggling ahead of next week's ECB (European Central Bank) meeting and EU summit are unlikely to push Bunds out of their recent ranges," said Rainer Guntermann, rates strategist at Commerzbank.

"European government bond spreads have scope to tighten as the flow profile improves and light calendars provide a fertile backdrop for opportunistic issuance."

Indeed, data on Monday showed orders for Italy's new "BTP Futura" July 2030 bond has reached one billion euros. The new bond, for retail investors only, will be entirely used to fund measures to help Italy's economy recover from the coronavirus. 

(Reporting by Dhara Ranasinghe, editing by Ed Osmond) ((Dhara.Ranasinghe@thomsonreuters.com; +442075422684;))