Euro zone borrowing costs rise in hefty day for supply

* Euro zone yields up 1-2 bps

* Political brokerage puts pressure on Italia debt

Rise in yield contained by demand for safe-haven debt

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

By Fanny Potkin

LONDON, March 15 (Reuters) - Euro zone borrowing costs inched up in early trades on Thursday, as investors awaited a hefty new dose of supply, although concerns about a global trade war continued to limit the rise.

Italy remained in focus a day after the leader of the far-right League said that the euro was not irreversible and that he was open to forming any sort of coalition government as long as it did not include the Democratic Party, which has ruled for the past five years.

Analysts said the market remained sensitive at the prospect of a populist alliance forming the next government in Italy, the euro zone's third-biggest economy.

"The chance of a government of extreme parties being formed in Italy are still low, but the size of the tail risk in Italy just got fatter," said Peter Chatwell, head of European rates at Mizuho in London.

The premium that investors demand to hold 10-year Italian debt over benchmark German debt was at around 140 basis points, after reaching its widest in one week on Wednesday.

The underperformance of Italian bonds against their southern European peers has been more marked.

The gap between 10-year Italian and Spanish bond yields is at 61 basis points and close to its widest in three weeks.

The Italian/Portuguese 10-year yield gap at 22 bps , is near its widest in seven weeks.

Most better-rated euro zone bonds were up to 2 basis points higher on the day, with France and Spain preparing to auction bonds later on Thursday.

France will sell 7.5 billion euros in long-dated bonds and up to 1.75 billion euros in inflation-linked debt. Spain is auctioning up to 5.5 billion euros in long-dated debt.

"The market is making room for supply but we think the auctions from the two issuers, France and Spain, should be easily absorbed," said Mizuho's Chatwell.

However, the rise of bond yields was contained by strong investor demand for safe-haven assets, as fears mount that growing trade tensions will hurt the global economy.

Germany's 10-year bond yield, the benchmark for the region, hovered near a 1-1/2 month low hit on Wednesday, and was last up 0.5 bps at 0.59 percent.

Also on Thursday, the European Central Bank's Sabine Lautenschlaeger is scheduled to speak.

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, two of the ECB's top officials said on Wednesday.

(Reporting by Fanny Potkin and Dhara Ranasinghe Editing by Hugh Lawson)