* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds details, updates prices) LONDON, Feb 23 (Reuters) - European government bond yields resumed their rise on Tuesday, brushing aside the discomfort the European Central Bank signalled over the surge a day earlier. ECB President Christine Lagarde said on Monday the central bank was “closely monitoring” rising borrowing costs - a comment that knocked Germany’s 10-year Bund yield off its eight-month high. The French and Italian benchmark yields also dropped. But yields rose back on Tuesday, with Germany’s 10-year yield, the benchmark for the euro zone, heading back towards its highest since June that it hit on Monday. Borrowing costs across the euro zone have risen sharply this month as the prospect of more U.S. fiscal stimulus boosted hopes for a faster economic recovery, dragging bond yields higher globally. The market is nervous and has not yet found equilibrium, said Commerzbank rates strategist Christoph Rieger. “As bearish volatility persists, there are very few big hands willing to take the other side,” he said. The ECB’s strategy “is not to burn too much cash trying to lean against the wind – rather to intervene verbally”, he said, citing lower levels of ECB bond-buying last week. At 1535 GMT, Germany’s benchmark 10-year Bund was up 4 bps at -0.31%, having risen as high as -0.287% earlier in the session. Before Lagarde’s comments on Monday, it had climbed to an eight-month high of -0.278%. Italy’s 10-year yield rose as much as 7 bps to 0.68%, its highest since January, while French 10-year yields were up 5 basis points, nearing positive territory at -0.04%. “I think all markets will want to test central banks at inflection points and you could argue we are at a growth inflection point,” said April LaRusse, head of investment specialists at Insight Investment. “Markets are actually going to start testing how much central banks are willing to (force) their view,” she added, referring to pledges that monetary policy will remain loose until an economic recovery from the pandemic takes place. Bond yields remained higher on the day even as Federal Reserve Chair Jerome Powell said the U.S. economic recovery remained “uneven and far from complete” and it would be “some time” before the Fed considered changing policies it adopted to help the country back to full employment. “While we think price pressures may spike in the near term as pent-up demand meets constrained supply, we believe fears about a persistent rise in inflation are likely to prove overdone,” UBS said in a note. “With this environment in mind, we think investors should be prepared for inflation concerns to persist, which could trigger bouts of volatility.” (Reporting by Elizabeth Howcroft; Additional reporting by Yoruk Bahceli; Editing by Larry King and Alison Williams)