* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds details, updates prices)

LONDON, April 14 (Reuters) – German government bond yields rose to two-week highs in late Wednesday trade, unwinding an earlier rally when manufacturing and industrial data in the euro zone and Japan signalled hurdles ahead as the global economy battles the coronavirus pandemic.

Euro zone industrial output declined in February after expanding in January, and Japanese machinery orders fell by the most in about a year.,

Euro zone bond yields – which have tracked U.S. Treasury yields higher on hopes for a strong economic recovery later this year and higher inflation – initially dropped.

But that reversed and Germany’s 10-year bond yield , the benchmark for the single currency bloc, rose to its highest in over two weeks in late Wednesday trade at -0.264%, above levels touched on Tuesday when a flurry of bond sales pressured the market.

Treasury yields were also rising, with a number of Federal Reserve speakers scheduled for Wednesday in the wake of inflation data that slightly beat expectations.

Dallas Federal Reserve Bank President Robert Kaplan repeated his view that the Fed should begin to withdraw support from the economy sooner than most of his colleagues think.]

“The overall pictures is for rising yields,” said ING rates strategist Antoine Bouvet.

“Lots of people believe a strong recovery is in the price, but this depends on the Fed’s communication – the start of the tapering debate needs to be this year given the potential strength of the recovery.”

The euro zone economy is still standing on the “two crutches” of monetary and fiscal stimulus, and these cannot be taken away before a full recovery, European Central Bank president Christine Lagarde said.

Some policymakers have expressed hope the ECB could start reducing bond purchases in the third quarter as the pace of COVID-19 vaccinations picks up.

In the primary market, Ireland hired a syndicate of banks to sell a 20-year bond, which will raise 2-3 billion euros according to a market source.

Governments are back to issuing longer-dated bonds after such issuance died down with February’s bond sell-off, with Austria and Spain selling 50 and 15-year bonds respectively on Tuesday.

The European Union also unveiled its 800 billion euro recovery fund borrowing plan on Wednesday, which will raise around 150 billion euros annually starting later this year.

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