* Bond yields rise as euro weakens
* ECB's Nowotny says would not over-interpret euro rise
* German 30-yr yields set for biggest 1-day jump since late July
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (updates throughout)
LONDON, Sept 1 (Reuters) - Euro zone government bond yields rose across the board on Friday, reversing earlier falls, as the euro weakened and European Central Bank rate-setter Ewald Nowotny played down recent strength in the single currency.
Nowotny said the ECB will discuss how to initiate a careful withdrawal from its monetary stimulus, adding he would not over-interpret or dramatise the euro's sharp rise against the dollar.
ECB Vice President Vitor Constancio added on Friday that lifting euro zone inflation may be more difficult than earlier expected.
A report by Reuters on Thursday that euro strength is worrying a growing number of ECB policymakers had triggered a fall in bond yields, especially those in southern Europe which also opened lower on Friday.
But a combination of strong manufacturing data and Nowotny's comments resulted in a reversal of those early moves which gathered pace as the euro weakened against the dollar.
"The key point was that he (Nowotny) had a relatively sanguine view on currency strength, which challenges the concerns raised yesterday by some policymakers about the euro," said Richard McGuire, head of rates strategy at Rabobank.
He added the caveat that Nowotny is one of the more hawkish members of the ECB Governing Council.
Euro zone manufacturing activity accelerated in August, clocking the fastest rise in export orders since February 2011 despite a strengthening currency, a business survey showed.
Germany's benchmark 10-year bond yield was up 1.5 basis points at 0.38 percent.
German 30-year yields were set for their biggest one-day rise since late July with a rise of 5 basis points to around 1.17 percent.
Italian and Spanish 10-year borrowing costs, were up 3 bps each , having dropped 3 bps in early trade.
A sell-off in euro zone bonds accelerated in afternoon trade as the euro weakened against the dollar after closely-anticipated U.S. jobs numbers.
The U.S. economy created 156,000 new jobs last month, below analyst expectations for a gain of 180,000 but considered sufficiently strong to support the possibility of another rate rise from the U.S. Federal Reserve this year.
Analysts said a weaker euro may have eased bond investor concerns about the dampening impact a strong currency has on inflation, pushing bond yields up.
A key gauge of the market's long-term inflation expectations rose to its highest level since May, close to 1.62 percent .
"It looks like the currency that's driving bonds this afternoon," said Orlando Green, European fixed income strategist at Credit Agricole. "The weakening of the currency will have the reverse effect on inflation."
Euro zone inflation rose more than expected in August, data showed on Thursday, but at 1.5 percent was still well below the ECB target of just below 2 percent.
(Reporting by Abhinav Ramnarayan and Dhara Ranasinghe, editing by Pritha Sarkar)