* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
LONDON, Aug 31 (Reuters) - German benchmark 10-year bond yields were steady below last week's 2-1/2 month highs on Monday, with data released from the euro zone's biggest economy this session expected to reinforce a benign inflation outlook in the currency bloc.
Trade across European markets was generally subdued, with markets in London closed for a public holiday.
German government bond yields hit their highest since early June on Friday, after the U.S. Federal Reserve's decision to target average inflation pushed yields to multi-month highs on both sides of the Atlantic.
In early trade, the 10-year Bund yield hovered at -0.41% , down from Friday's high of around -0.37%. Borrowing costs in other euro zone debt markets were also broadly steady -- Italy's 10-year bond yield was marginally higher on the day at 1.11%.
"Bunds are taking direction from U.S. Treasuries and the resistance area for 10-year yields around -0.4% continues to hold," said Rainer Guntermann, rates strategist at Commerzbank.
Data showed the consumer price index (CPI) for the German state of North Rhine-Westphalia was flat in August after a 0.7% drop in July.
Germany's nation-wide inflation number will be released later this session, ahead of the flash euro zone inflation August data release due out on Tuesday.
"This week's euro-area inflation data should underscore the central banks' challenges in reaching the (inflation) targets," said Guntermann.
A pick-up in government bond issuance as the summer trading lull draws to an end could also put renewed upward pressure on borrowing costs in the euro area, analysts said.
Analysts expected total euro sovereign bond supply this week to top 20 billion euros.
That number could rise if Germany, the euro zone's benchmark bond issuer, comes to the market with its first green bond as some expect. It is scheduled to sell its inaugural 10-year green Bund in September. (Reporting by Dhara Ranasinghe; Editing by Ana Nicolaci da Costa)
