* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Releads throughout, adds comment, updates prices) LONDON/AMSTERDAM, Dec 23 (Reuters) - Hopes that Britain and the European Union will clinch a post-Brexit trade deal lifted yields on UK and euro zone government bonds on Wednesday, with the British 10-year yield up as much as 10 basis points. A senior European diplomat told Reuters that Britain and the EU were close to a deal. Some media suggested an agreement might be announced on Wednesday or Thursday, but another EU official said: “It could still go either way.” There was no confirmation a deal was close, but sterling and stock markets rose. “There’s some conviction in the market,” said Antoine Bouvet, Senior Rates Strategist at ING. Further market action was likely should a deal be confirmed, he said. The benchmark German 10-year bond yield jumped 6 basis points to -0.54%.. Other higher-rated euro zone countries such as the Netherlands and France also saw borrowing costs rise. Southern European 10-year bond yields were also on the rise, with Spain and Portugal gaining about 4 basis points each. Yields on British government bonds rose by the most in more than six weeks, with 10-year gilt yields rising as high as 0.296% for their biggest daily increase since Nov. 9 - when drugmaker Pfizer provided a strongly positive update on its COVID-19 vaccine. Earlier, European markets had been quiet, with activity reduced by the absence of the European Central Bank, which has halted its asset purchases over the holidays. Bonds had rallied earlier in the week to fears that a virulent new COVID-19 variant would force prolonged lockdowns and hit the economy. On the issuance front, Italy will replace a zero-coupon bill with a new short-term bond that offers a coupon and an 18- to 30- month maturity, its treasury said on Wednesday. (Reporting by Julien Ponthus; Editing by Larry King, Alexander Smith and Timothy Heritage)