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UPDATE 1-Trade war threat drives demand for high-grade euro zone bonds

* Long-term market gauge of inflation drops below 1.70 pct

* German 10-year yields near one-month lows

* Dutch govt bond auctions swamped with demand

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices, adds auction results, Draghi)

LONDON, March 14 (Reuters) - High-rated euro zone government bond yields edged higher on Wednesday, but remained near recent lows as the specter of trade wars cast doubt over a global recovery and the removal of the European Central Bank's stimulus.

U.S. President Donald Trump's decision on Tuesday to sack Secretary of State Rex Tillerson, seen as a strong supporter of free trade, was followed by a Reuters report that the United States was seeking to impose tariffs on up to $60 billion of Chinese imports.

ECB chief Mario Draghi meanwhile said on Wednesday that the possible spillovers of the new trade measures announced by the U.S. administration could hurt inflation. 1/8http://bit.ly/2IpRfLd 3/8

Draghi, along with ECB chief economist Peter Praet, took pains to temper market expectations for a speedy exit from bond buying.

Both policymakers argued that the ECB needs further evidence that inflation is rising towards its target and will end asset buys only when it is satisfied that price growth is on a sustained path towards its objective.

A market gauge of long-term inflation expectations that is closely watched by the ECB, the five-year five-year breakeven forward swap, fell below 1.70 percent.

"The bigger picture is we are currently seeing an environment of falling yields, and one of the key reasons is fears of an international trade war," said DZ Bank analyst Sebastian Fellechner.

German 10-year government bond yields seesawed around a one-month low of 0.60 percent, inching up to 0.62 percent in midday trades.

Elsewhere, demand for a Dutch auction of 10-year bonds hit 18 billion euros at one stage, a strong result for the Netherlands debt agency. 1/8http://bit.ly/2FJm2AY 3/8

The yield on Germany's 30-year bonds rose to 1.285 percent, up 8 basis points on the day, after a disappointing auction on Wednesday.

The German Finance Agency sold only 1.211 billion euros in a top-up of its 30-year Bund, falling short of its aim to raise 1.5 billion euros for the bloc's largest economy.

Portugal sold all 1.25 billion euros ($1.55 billion) of 10- and 27-year bonds on offer in an auction on Wednesday, with benchmark 10-year bond borrowing costs hitting an all-time low in a regular auction of 1.778 percent.

Southern European government bond yields rose after the sale by 2-3 basis points.

Other central bankers are also due to speak later on Wednesday, including Victor Constancio, and Francois Villeroy de Galhau.

(Reporting by Abhinav Ramnarayan, Editing by Gareth Jones)