* Euro zone yields 2-3 bps lower across the board

* California rolls back reopening plans

* ZEW, industrial production releases due

* Italy to sell up to 10 bln euros of debt

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

LONDON, July 14 (Reuters) - Investors retreated to the safety of euro zone government bonds on Tuesday as a surge in COVID-19 cases forced California to push back reopening plans, dampening Monday's excitement over improved corporate earnings.

The most populous U.S. state announced new restrictions on businesses on Monday and its two largest school districts, Los Angeles and San Diego, said children would be made to stay home in August.

"California rolling back its reopening plan late yesterday shows markets still have to deal with the fallout from record U.S. case counts," ING rates strategist Padhraic Garvey said in a note.

Most euro zone bond yields were about 2-3 basis points lower, with Germany's 10-year Bund yield - the benchmark for the region - dropping 2.5 bps to -0.43%.

The fall cancels out some of Monday's 6.3 bps rise, the biggest daily gain in over a month and coming on the back of a stock market rally. That fizzled out towards the end of the U.S. session, however, with the S&P 500 ending the day down 1%.

The change in risk sentiment was also fuelled by a further potential deterioration in trade relations between the United States and China, analysts said.

The Trump administration plans to scrap a 2013 agreement between the two countries' auditing authorities, a move that could foreshadow a broader crackdown on U.S.-listed Chinese firms, an official told Reuters.

In the euro zone, investors are looking with some unease towards this week's European Central Bank meeting and European Union summit.

If the ECB does not take further action immediately and EU leaders dither over finalising details of a recovery fund for the bloc, investors could end up disappointed, Garvey of ING said.

On Tuesday, the ZEW Financial Market Survey will give an indication of business sentiment in the bloc's largest economy while euro zone industrial production data is expected to show growth. Both releases are expected at 10 am London time.

Italy will auction up to 10 billion euros of debt of varying maturities, including a new seven-year bond. (Reporting by Abhinav Ramnarayan; editing by John Stonestreet)