* Bond yields nudge down across region
* Pull back from multi-month highs
* Investors creep back into bonds after recent heavy selling
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, Feb 9 (Reuters) - Most euro zone government bond yields pulled back from recent multi-month highs on Thursday, as investors put aside worries about political risks and returned to some of the bloc’s most beaten-down markets.
An unpredictable French election campaign and talk that the European Central Bank’s monetary stimulus could be unwound sooner rather than later have rattled regional bond markets in recent weeks.
France and riskier, peripheral markets such as Italy and Portugal bore the brunt of the selling, when yields rose to multi-month highs, earlier this week. But a sense that the sell-off had gone too far provided some respite on Thursday.
“Today we have some relief with investors shrugging off some of their concerns with a feeling that things went too far, too fast,” said Martin Van Vliet, senior rates strategist at ING.
France’s 10-year bond yield, dipped 1 basis point to 1 percent, holding below Monday’s near 17-month high of around 1.16 percent. That pushed the gap over safe-haven German Bund yields to 70 basis points, narrowing from four-year highs around 79 bps on Wednesday.
Italian and Spanish bond yields fell about 3 bps each, with Italy’s 10-year bond yield touching a two-week low at around 2.19 percent.
In contrast, German bonds, which have benefited from the recent selling in euro zone peers, were a touch weaker. The 10-year German Bund yield rose 1 bps, pulling back from a 2 1/2-week low hit on Wednesday at 0.29 percent. When a bond’s price falls, the yield rises.
But with political risks very much in focus, analysts said renewed worries about Greece could exacerbate investor sentiment towards the bloc.
Greece’s bailout programme is being held up by a dispute about the country’s fiscal targets. The International Monetary Fund argues that a Greek fiscal surplus target of 3.5 percent of gross domestic product cannot be met without massive debt relief or further austerity measures that would hurt growth.
Germany, which contributes the most to Greece’s bailout, faces national elections in September, and it opposes any discussion of debt relief before Greece reaches the bailout target.
Attention was expected to turn later in the day to a meeting between German Chancellor Angela Merkel and ECB President Mario Draghi in Berlin.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Reporting by Dhara Ranasinghe, editing by Larry King)