UPDATE 1-German Bund yield touches one-week high, Fed's Powell eyed

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates price action, adds chart, supply)

LONDON, July 14 (Reuters) – Germany’s benchmark 10-year bond yield briefly touched a one-week high on Wednesday, in a sign that a rush into safe-haven debt seen over the past week could be abating.

A rise in long-dated U.S. Treasury yields on Tuesday following weak demand for a $24 billion sale of 30-year bonds and a 3.39 billion euro ($4.00 billion) sale of 10-year German bonds put some upward pressure on euro zone bond yields in early trade.

But price action was generally muted with investors sticking to the sidelines ahead of testimony to Congress later in the day from U.S. Federal Reserve chief Jerome Powell.

Germany’s benchmark 10-year bond yield rose to -0.273% , a one-week high, before pulling back to -0.30% — broadly unchanged on the day. Most other euro zone bond yields were also steady.

Bund yields fell to three-month lows around -0.34% last week as markets reassessed the outlook for world growth and inflation.

The spotlight was on Powell, who will speak a day after data showed the U.S. consumer price index increased 0.9% last month, the largest gain since June 2008, after advancing 0.6% in May.

So far, the Fed and the European Central Bank have said that they will look past any near-term rise in inflation, which is likely to be driven by one-off factors.

But another month of a strong U.S. inflation print is leading to questions over whether a pick-up in inflation really is transitory.

“It’ll be interesting to see his (Powell’s) response to the latest CPI report, particularly since markets responded by moving up the pace of future Fed hikes,” said Deutsche Bank strategist Jim Reid.

Analysts said an expectation that the ECB would confirm its dovish stance at next week’s policy meeting — the first after a strategy review — continued to support euro zone bond markets.

Florian Späte, senior bond strategist at Generali Investments, said he expected bond yields to rise further out.

“We don’t think the recent drop in yields will last,” he said. “Going forward, we think there is leeway for higher yields in the U.S. and Europe.” ($1 = 0.8480 euros)

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