* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr LONDON, April 14 (Reuters) - Euro zone government bond yields fell on Wednesday, tracking their U.S. counterparts lower, after solid demand for a Treasury auction in the United States underpinned bond markets. Bonds were also supported by data out of Japan which showed core machinery orders unexpectedly fell by the most in about a year in February. The figures dashed hopes for a pick-up in capital expenditure needed for a private sector-led recovery in the world’s third largest economy. Euro zone bond yields, which had been rising in line with U.S. Treasury yields on hopes for a strong economic recovery later this year and increased inflation, dropped 1-3 basis points. “The global picture is that the manufacturing sector is in rude health and is the sector that is leading the recovery, so perhaps there’s a bit of a reaction to that,” said ING rates strategist Antoine Bouvet. Industrial production data for the euro zone is due out later on Wednesday. A solid 30-year auction by the U.S. Treasury also prompted a bond relief rally, Bouvet added. U.S. Treasury yields fell and the yield curve flattened on Tuesday in the wake of that auction. Germany’s 10-year bond yield, the benchmark for the single currency bloc, dropped 1.7 basis points to -0.307%, having hit a near two-week high of -0.27% on Tuesday after U.S. inflation data came in slightly above expectations. Other euro zone bond yields were also 1-3 basis points lower on the day. Ten-year U.S. Treasury yields were unchanged at 1.628%, having dropped nearly 4 basis points late on Tuesday. “The overall pictures is for rising yields. Lots of people believe a strong recovery is in the price, but this depends on the Fed’s communication - the start of the tapering debate needs to be this year given the potential strength of the recovery,” said Bouvet. Several U.S. Federal Reserve officials are due to speak later on Wednesday. (Reporting by Abhinav Ramnarayan; Editing by Ana Nicolaci da Costa)