* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
LONDON, Sept 30 (Reuters) - Euro zone bond yields rose on Monday after European Central Bank President Mario Draghi again stressed the need for fiscal policy to support the bloc's long-term growth prospects.
In an interview with the Financial Times, Draghi said that the need for fiscal policy as a complement to monetary policy was now more urgent than before.
While the ECB unleashed a fresh round of stimulus measures on Sept. 12, concern that the central bank is reaching the limits of what its policy can achieve has contributed to selling in higher rated debt markets such as Germany and France.
"It's very clear that the ECB has no power over the fiscal side," said Peter Chatwell, head of rates at Mizuho.
Most 10-year bond yields rose 2-3 basis points on the day to one-week highs before pulling back on a weak inflation print from the German state of Saxony.
Meanwhile, Spanish EU-harmonised consumer prices rose by 0.2% year-on-year in September, data showed, compared with a consensus forecast of 0.3%.
Germany's 10-year bond yield was up 2 bps at -0.56% . It was set to end September with a rise of 15 bps -- which would be the biggest monthly jump since early 2018.
French 10-year bond yields were also set for their biggest monthly jump since early last year.
As the third quarter drew to a close, Italy stood out as the bloc's best performing bond market.
Italy's 10-year bond yield, which moves in the opposite direction to the price, is down 18 bps this month at 0.85% and a hefty 125 bps this quarter -- set for its biggest quarterly slide since early 2012.
The formation of a new coalition government comprising the 5-Star Movement and the pro-European Democratic Party in August has dispelled near-term election risks, driving investors into one of the few positively yielding bond markets in the single currency bloc.
In addition, Italy is seen as a key beneficiary of the ECB's latest stimulus measures which include open-ended asset purchases, while concerns about the country leaving the bloc have fallen away.
Italy's economy minister suggested on Sunday that the country's budget deficit would be set at around 2.2% of domestic output next year, stressing the need for flexibility as Rome tries to rekindle stalled growth without reigniting friction with the EU.
"Generally the concerns around Italy were the 2020 budget and so far it seems the new government will abide by EU rules and that is the key focus for markets," said Pooja Kumra, European rates strategist at TD Securities.
Elsewhere, Austria's bond market showed little immediate reaction to news that conservative leader Sebastian Kurz triumphed in Sunday's parliamentary election.
(Reporting by Dhara Ranasinghe; Editing by Alison Williams)