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UPDATE 1-German bond yields edge back from 3-1/2-week high as supply abates

* Euro zone bond yields dip as supply pressures ease

* Ireland sells bonds

* BoE, U.S. inflation data eyed

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates throughout)

LONDON, Sept 14 (Reuters) - Germany's 10-year bond yield edged off 3-1/2 week highs on Thursday as heavy upward pressure on euro zone bond yields from supply abated.

Government bond yields in Germany, the bloc's biggest economy and its benchmark bond issuer, are up 11 basis points from 2-1/2 month lows hit at the end of last week.

A bond market selloff that began on Friday after a report that European Central Bank rate-setters agreed last week to start reducing bond purchases, accelerated this week as markets absorbed more than 15 billion euros of bond issuance from the bloc.

Ireland sold 1 billion euros of bonds on Thursday.

That followed an unexpected 3.5 billion euro sale of 100-year bonds from Austria earlier this week.

Germany, the Netherlands and Italy have also held bond auctions as supply from the region picks up after a summer lull.

Investors often sell existing bonds to make way for new ones, putting upward pressure on bond yields.

"Supply may be easing today but it remains the theme of the week," said Rabobank fixed income strategist Lyn Graham-Taylor.

Having risen in early trade, most euro zone bond yields dipped after the Irish bond auction to trade 1-2 basis points lower on the day.

Germany's 10-year bond yield dipped 1 bps to 0.40 percent , pulling back from a 3-1/2 week high around 0.42 percent hit in early trade.

Still, analysts said sentiment remained bearish.

One reason for that is a weakening euro, which could encourage the ECB to bring forward plans for a withdrawal of its massive bond-buying stimulus.

The euro has weakened about 1.6 percent from 2-1/2 year highs hit against the dollar last week.

A slight weakening in the single currency helped lift a key market gauge of long-term euro zone inflation expectations to a four-month high at 1.63 percent.

"The weaker euro has amplified the headwinds facing the bond market," said Rainer Guntermann, a strategist at Commerzbank. "With the euro off its highs, it is easier for the ECB to taper next year."

German central bank head Jens Weidmann and ECB Executive Board Member Yves Mersch are due to speak later in the day.

ECB policymakers need more economic evidence before they decide whether and how to reduce their monetary stimulus programme, ECB rate-setter Bostjan Jazbec said on Thursday.

Investors will also be watching a Bank of England meeting and U.S. inflation data.

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 Matthew Mpoke Bigg)