* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr LONDON, Jan 29 (Reuters) - Italian government bond yields edged lower on Friday and the spread between core and riskier debt narrowed, partly because of better-than-expected economic data and a perceived lessening of Italian political risks, along with hopes for fiscal stimulus next week. France’s gross domestic product contracted less than expected in the fourth quarter of 2020, official data showed . Spain’s GDP also beat expectations, achieving a small quarterly growth in the last quarter of 2020, despite lockdown restrictions having strengthened since November. While Germany’s benchmark 10-year yield was higher , the Italian 10-year yield was down around 3 basis points on the day at 0814 GMT, at 0.618%. Portugal and Spain’s 10-year yields were flat on the day . “The spread tightening in Italy I think is to do with the fairly high degree of optimism with regards to the Italian political situation, so in other words we’re still retracing that widening that we had earlier in January,” said Antoine Bouvet, senior rates strategist at ING. “I think we’re going to a regime of higher volatility in spreads, not just in Italy. This could be offset by the optimism on the political front, but if that optimism proves misplaced or once some of that retracing happens in spreads, we will unfortunately suffer from a little bit more of fleeting tone on spreads,” Bouvet said. Former premier Matteo Renzi said on Thursday he was ready to help form a new Italian government but would not commit to supporting a fresh mandate for Giuseppe Conte, the man he unseated this week as prime minister. President Sergio Mattarella is holding three days of talks with party leaders to try to resolve the turmoil, finishing on Friday afternoon. Bouvet said that rates should move higher in the next week, with some U.S. data due and President Joe Biden’s fiscal stimulus plans in focus. On Wednesday, European Central Bank governing council member Klaas Knot said the ECB was ready to cut its deposit rate further below zero if necessary to keep its inflation target in sight. Elsewhere, European stocks fell more than 1%, tracking declines in Asian and U.S. equity markets, amid a retail trading frenzy that gripped Wall Street this week. (Reporting by Elizabeth Howcroft, editing by Larry King)