(Recasts, adds background) Aug 17 (Reuters) - German bond yields were flat on Tuesday, tracking moves in U.S. Treasuries, after mixed U.S. economic data. Bund yields dropped earlier below the ECB’s policy rate for the first time in nearly two weeks as risk sentiment was dampened by a spike in Delta variant-related COVID-19 cases and uncertainty after the Taliban’s seizure of power in Afghanistan. U.S. retail sales fell more than expected in July as shortages weighed on purchases of motor vehicles, suggesting a moderation in economic growth. Meanwhile, production at U.S. factories surged in July, boosted by an acceleration in motor vehicle output. An unexpected sharp fall in U.S. consumer sentiment on Friday had sent bond yields tumbling, prompting a market rethink of the U.S. Federal Reserve’s stimulus-tapering timeline. Data on Monday showed Chinese factory output and retail sales growth slowing sharper than expected, adding further uncertainty. That usually benefits safe-haven bond prices, which move inversely with yields. “The focus is on U.S. data, scoured for any hints of further economic deceleration,” ING analysts told clients. Germany’s 10-year yield, the benchmark for the bloc, fell as much as 3 basis points on Tuesday, dipping below -0.50%, the European Central Bank’s policy rate, for the first time since Aug. 5. By 1520 GMT, it was flat at -0.47%. Italy’s 10-year yield was up 1 basis point to 0.58%, bringing the closely watched gap with German equivalents to 104 bps. The inflation-adjusted, or real yield for the euro area as a whole as measured by the swap market, was near a record low at -1.74%. U.S. Treasury yields were flat after rising from session lows. Michael Leister, head of interest rates strategy at Commerzbank, said higher bond buying by the ECB during the summer period compared to last year likely added to the downward pressure on bond yields. The ECB’s combined average conventional public sector bond purchases and pandemic emergency bond purchases in August so far have been 95% of the April-July average, according to ING. In the primary market, Germany raised 4.809 billion euros from the auction of a new two-year bond. Fed chairman Jerome Powell is due to give a speech at 1730 GMT, after the close of European markets. Reporting by Yoruk Bahceli and Stefano Rebaudo; Editing by Our Standards: The Thomson Reuters Trust Principles.