Yellen, Trump tax plan push up euro zone bond yields

* German Bund yield pulls back further from lows hit Monday

* Yellen sticks to view on gradual rate rises

* U.S. tax plan expected to be unveiled later in day

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

LONDON, Sept 27 (Reuters) - Government bond yields in the euro zone rose on Wednesday after U.S. Federal Reserve chief Janet Yellen said the central bank needs to continue gradual interest-rate hikes even though there is uncertainty about the inflation outlook.

Two-year U.S. Treasury yields climbed to around 1.47 percent , their highest level since October 2008, setting the tone for bond trading in Europe.

Renewed expectations for tax reform from the Trump administration also kept bond markets on the back foot, while boosting sentiment in world stock markets. The administration and Republicans in Congress are due to unveil a tax plan later on Wednesday. If passed, it would be the first significant legislative victory for U.S. President Donald Trump since taking office in January.

"Yellen's comments gave more certainty about another rate hike by the end of the year," said DZ Bank rates strategist Daniel Lenz.

"Further details of Trump's tax plans and whether this proceeds smoothly will be of interest -- it should be a boost to the economy and mean a generally higher bond yield environment."

Most euro zone bond yields were 1-2 basis points higher on the day.

Germany's benchmark 10-year bond yield was up 2 basis points at 0.43 percent, pulling further away from an 11-day low hit on Monday at 0.395 percent.

U.S. 10-year Treasury yields were up 3 bps at around 2.26 percent. That pushed the gap over German peers to 183 bps and not far off its widest levels since July.

In the euro zone, analysts said the focus remained on Catalonia where a referendum on independence is due to take place this weekend.

Spain's government said on Tuesday that police would take control of voting booths in Catalonia to help thwart the independence referendum that Madrid has declared illegal.

The dispute has plunged Spain into one of its biggest political crises since the restoration of democracy in the 1970s after decades of military dictatorship.

While Spanish bonds have remained relatively resilient, analysts said the bond market could be vulnerable to a sudden shift in investor sentiment.

The gap between Spanish and German bond yields -- a gauge of how investors view relative risks -- stood at 118 bps on Wednesday.

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(Reporting by Dhara Ranasinghe; Editing by Susan Fenton)