UPDATE 2-Italian bond yields fall to lowest in over six months ahead of Fed meeting

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

LONDON, Sept 16 (Reuters) - Italy’s 10-year borrowing costs fell to their lowest since early March on Wednesday as the focus remains on central banks.

The European Central Bank remains open to boosting its already generous stimulus measures, several policymakers said on Wednesday, further nuancing the bank’s unexpectedly sanguine policy message from last week.

On the other side of the Atlantic, the U.S. Federal Reserve is expected to wrap up its latest policy meeting on Wednesday with somewhat rosier economic forecasts but a renewed pledge to keep interest rates low for as long as the economy needs to recover from its deepest downturn in decades.

This should keep downward pressure on global government bond yields and risk appetite high as the world’s largest central bank keeps the stimulus taps on, though a further rally is unlikely, analysts said.

Southern European bonds rallied on Wednesday, with Italian bond yields falling 2-3 basis points across the curve. That pushed benchmark 10-year yields to 0.962%, their lowest since March 4, before the coronavirus crisis led to a spike in Italian borrowing costs.

The strengthening of the euro continues to fuel rate cut speculations from the European Central Bank, with stimulus bets increasing the appeal of peripheral bonds, said Rabobank strategist Lyn Graham-Taylor.

Germany’s 10-year bond yield was last unchanged around -0.49%.

From the Fed, analysts will also be watching for any further detail on the central bank’s shift to a more flexible position on inflation.

Charalambos Pissouros, an analyst at JFD Group, said updated economic projections will give the market an idea of how much of an inflation overshoot the Fed is willing to tolerate before they start considering raising rates.

In Europe, Germany sold 1.5 billion euros of 30-year Bunds in an auction when demand for government debt remains powerful, fuelled by European Central Bank stimulus.

The president of the European Commission, the European Union executive, said 30% of the debt backing the EU’s 750 billion euro recovery fund should be financed via green bonds, as markets largely expected. (Reporting by Abhinav Ramnarayan; additional reporting by Yoruk Bahceli, Editing by William Maclean and Lisa Shumaker)