* Euro zone bond yields edge down, give up early rise
* Euro hits 2-1/2 year high vs dollar
* Draghi says ECB policy is working
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates with late price move in Bunds)
LONDON, Aug 28 (Reuters) - Germany's benchmark 10-year government bond yield dipped to a two-month low on Monday, in the absence of any major policy cues from top central bankers at a gathering in Jackson Hole, Wyoming at the end of last week.
Federal Reserve Chair Janet Yellen did not mention monetary policy in a highly anticipated speech at Jackson Hole.
European Central Bank chief Mario Draghi, speaking late on Friday, said ECB policy is working and the euro zone's economic recovery has taken hold even if more time is needed to lift inflation to the bank's 2-percent target.
The euro climbed to a 2-1/2-year high near $1.20 after Draghi held back from talking down the currency in his speech.
There had been some speculation that Draghi could use the opportunity to tame a strong euro, which hurts exporters and helps dampen inflation by keeping down the price of imported goods.
"Most investors had hoped for more hints about the monetary policy outlook but there was nothing on this front from Draghi," said DZ Bank rates strategist Daniel Lenz.
Bond yields, which opened a touch higher slowly nudged back down in a trading session where activity was considerably weakened by a public holiday in Britain.
German 10-year bond yields dipped about a basis point to a two-month low at 0.367 percent. Other euro zone bond yields were also down around 1-2 bps.
Concerns about the U.S. debt ceiling and the economic impact of Tropical Storm Harvey, the most powerful hurricane to hit Texas in more than 50 years, helped support safe-haven bond markets.
But after a summer lull, supply from euro zone governments picks up this week and is expected to put some upward pressure on bond yields as investors make way for new bond issuance.
Italy sold 2 billion euros of bonds maturing in 2019 on Monday..
Germany sells 5 billion euros of two-year bonds on Tuesday.
This week also sees the release of key economic releases such as German inflation data and U.S. employment numbers.
The ECB meets next week and with market focus returning to the timing for a scaling back of the central bank's bond-buying scheme, lower-rated bond markets fell under selling pressure last week. "A likely drop in euro area core inflation and euro strength add juice to next week's (ECB Governing)Council discussions," analysts at Commerzbank said in a note.
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 Richard Balmforth)