UPDATE 4-German bond yields rise as Japan growth surges, Korea tensions wane

* Japan growth could signal global recovery, tighter policy

* German 10-year yield rises 2.5 bps, back above 0.40 pct

* Easing Korea tension sees Italy-Germany spread narrow

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Adds fresh quote, updates prices)

LONDON, Aug 14 (Reuters) - Low-risk euro zone government bond yields rose 3 basis points on Monday, bouncing from recent lows on stronger-than-expected Japanese growth and as tensions over a nuclear standoff over North Korea eased slightly.

Japan's economy expanded at the fastest pace in more than two years in the second quarter as consumer and company spending picked up, highlighting a long-awaited bounce in domestic demand.

The data further supported expectations that the global economy is on the mend and that central banks can start to unwind extraordinary monetary stimulus put in place in the wake of a series of financial and debt crises.

"The question becomes how Japanese growth could impact the very expansionary stance of central banks," said DZ Bank strategist Daniel Lenz.

The yield on top-rated Germany's 10-year government bond , the benchmark for euro zone borrowing costs, rose 3 bps to 0.41 percent.

The move also followed a reduction in tension between North Korea and the United States as U.S. officials played down the risk of conflict.

On Friday, after two days of bellicose rhetoric, the German 10-year yield fell to as low as 0.38 percent.

"We have had those comments by more cool-headed members of the administration, which have reassured the market," said Mizuho strategist Antoine Bouvet, adding, however, that nothing had fundamentally changed.

The relative calm also reduced southern European government bond yield spreads over Germany's benchmark bond.

The gap between Italian and German 10-year borrowing costs, a key indicator of risk sentiment in the market, narrowed to 160 basis points on Monday as Italian yields fell, having widened to 166 bps last week.

The minutes of the July meetings of the U.S. Federal Reserve and the European Central Bank are due on Wednesday and Thursday respectively.

Expectations that the ECB will follow other major central banks in unwinding stimulus have pushed yields higher since the start of the year.

However, chances of the Fed raising interest rates for a third time this year have taken a series of knocks in recent weeks. The most recent came on Friday from data showing U.S. consumer prices rose just 0.1 percent month-on-month in July, compared with a forecast of a 0.2 percent rise.

"...they are coming round to the view that we have had for a while.. That their inflation forecast isn't sustainable, so how that consensus within the Fed is shifting will be interesting," Bouvet said.

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(Reporting by Abhinav Ramnarayan and Nigel Stephenson; Editing by Toby Chopra)