UPDATE 2-German yields dip, Southern Europe's steady as lockdowns tighten

* Euro zone periphery govt bond yields (Adds details, updates prices)

LONDON, Nov 2 (Reuters) - Germany’s 10-year bond yield held near its lowest since March on Monday while peripheral euro zone sovereign debt yields held ground as new lockdowns in Europe increased demand for safer assets.

As COVID-19 cases surged across Europe, nationwide lockdowns were announced in Britain, France and Germany. Austria, Portugal, Spain and Italy were tightening restrictions.

Euro zone PMI data showed that the recovery seen in October was mostly driven by a boom in Germany. Last week, the country introduced lockdowns that are almost as severe as those in the first stage in the crisis, suggesting that its activity will be curtailed.

Core euro zone bond yields dipped, while riskier Italian yields rose by 1 to 2 basis points. Analysts said the effect of the worsening coronavirus situation and tighter lockdowns was limited by expectations of more monetary stimulus.

“The nearest, clearest market impact from the new lockdowns will come from the Bank of England this week. The market has coalesced around expectations for more QE (quantitative easing),” said Peter Goves, European interest rate strategist at MFS Investment Management.

“As far as the ECB is concerned, this centres around their December projections. A weakening in momentum and downward revisions to Q4 projections will justify further action,” he said.

Still, a key market gauge of long-term euro zone inflation expectations fell to its lowest since July 13 at 1.1008%

Peripheral yields held near levels they fell to last week when the European Central Bank gave a clear signal that it would provide more easing at its December meeting.

A record three-quarters of euro zone government bonds traded with negative yields at the end of October, data from Tradeweb showed, driven in part by stimulus expectations.

“We are more circumspect about sovereign spreads, the feel-good factor from the ECB committing to ease in December is real, but we are unsure it will last long,” ING rates strategists told clients.

Germany’s 10-year Bund yield was down 1 basis point on the day in late trade at -0.63%, near its lowest since March at -0.646% hit last week.

Italy’s 10-year yield was unchanged at 0.72%, keeping the yield gap with its German equivalent unchanged.

The European Central Bank’s weekly bond purchases fell last week and buying under its pandemic emergency bond purchase programme hit its lowest since it was launched in March, data showed on Monday.

Analysts said it would be important to watch redemption data due on Tuesday.

The European Union sent a request for proposal to investment banks in preparation for its second bond sale to fund the SURE programme, Refinitiv IFR reported.

Reporting by Elizabeth Howcroft, Abhinav Ramnarayan and Yoruk Bahceli; editing by Larry King and Andrew Heavens