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UPDATE 1-ECB taper fears leave euro zone bonds battered and bruised

* Bund yield flat but close to 18-month high at 0.58 pct

* ECB's Coeure: ECB should adjust policy carefully

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices, adds comment)

LONDON, July 7 (Reuters) - Euro zone government bonds steadied on Friday from another battering that left markets nursing heavy losses as investors reassess the outlook for fixed income on a growing view that an era of ultra-cheap money is gradually drawing closer to an end.

Euro zone growth is picking up but underlying inflation is still weak, so the European Central Bank should adjust its policy carefully and flexibly to avoid abrupt market moves, ECB board member Benoit Coeure told two European newspapers.

The Bank of Japan meanwhile said it would purchase an unlimited amount of bonds as it sought to put a lid on domestic interest rates pushed higher by the broad sell-off in developed market bonds.

Euro zone bond yields, which jumped as much as 12 basis points on Thursday as minutes from the ECB's latest meeting showed policymakers are open to a further step towards reducing monetary stimulus, were largely flat on Friday.

"The market is unlikely to keep selling off without fresh information...But sentiment remains bearish," said Orlando Green, European fixed income strategist at Credit Agricole.

Germany's benchmark 10-year Bund yield was a tad lower at around 0.56 percent, but held above the 0.50 percent milestone breached on Thursday that catapulted it to 18-month highs.

In the space of just over a week Bund yields have doubled, with German bonds bearing the brunt of selling in euro zone debt markets.

Italian and Spanish 10-year bonds yields both touched two-month highs, and analysts said peripheral markets remained vulnerable to any further selling in bond markets.

"If the market is going to conclude that monetary policy makers are making an effort to tighten, we should have spreads widening, so that could be the next shoe to drop as the sell-off starts to impact credit and equities," said Peter Chatwell, head of euro rates strategy at Mizuho.

Jitters about tighter monetary policies from major central banks have rippled throughout global markets, hurting stocks and supporting the euro.

U.S. Treasury yields rose on Thursday on the prospect of hawkish global central bank policies and concern that rising oil prices could spur inflationary pressures, while 10-year Japanese government bond yields hit five-month highs on Friday before the BOJ said it would buy JGBs.

Closely followed U.S. jobs data later in the session could be the next catalyst for any major market moves, analysts said.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.bi z / c m s / ? p a g e I d = l i v e m a r k e t s

(Reporting by Dhara Ranasinghe; Editing by Hugh Lawson)