* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds chart) LONDON, May 19 (Reuters) - Germany’s benchmark 10-year Bund yield fell from a two-year high on Wednesday, as a sharp fall in digital currencies forced investors to return to safe-haven debt markets. Euro zone government bond yields had risen for much of the session on concern about the possibility of the European Central Bank slowing its bond-buying as the economy recovers. But the move in German bonds, regarded as one of the safest assets, started to reverse as a selloff in digital currencies gathered pace. Bitcoin tumbled below the $40,000 mark on Wednesday to a 3-1/2 month low as selling in digital coins intensified after China banned financial and payment institutions from providing cryptocurrency services. The fall in Germany’s 10-year yield coincided with a sharp drop in Bitcoin and Ether shortly before 1300 GMT. “Ether has dropped 40%, which even for a very volatile asset is quite a lot, and this is spilling over into stocks and everything,” said Antoine Bouvet, senior rates strategist at ING. “As cryptocurrencies go more mainstream, more traditional investors hold them. If they lose a lot of money on them, it might force them to reduce risk and therefore to sell other risk assets.” Giuseppe Sersale, fund manager and strategist at Anthilia in Milan, also attributed the bond market move to the cryptocurrency falls. “Surely there is risk aversion in the equity market that comes at least in part from the cryptocurrency crash. When you start to see falls of 20 to 30%, demand for equity contracts and volatility spreads. Also because there are people here who are in at leverage. It’s a shock to the system,” he said. By 1341 GMT, yields had partially recovered from the drop, with Germany’s 10-year yield flat on the day at -0.109%, compared to its low of -0.127%.. Italy’s 10-year yield was up 3 bps on the day at 1.1221% . INFLATION EXPECTATIONS Euro zone inflation accelerated as expected in April because of a sharp rise in the costs of energy and services, data showed. British consumer price inflation more than doubled in April. A gauge of euro zone inflation expectations - the five-year, five-year inflation forward - rose to its highest since December 2018. Wednesday’s moves follow a big sell-off in euro area government bonds on Monday, driven by speculation the ECB may slow its emergency bond-buying as the economy recovers from the COVID-19 pandemic. Later in the session, the latest FOMC meeting minutes will be published. Chief economist Philip Lane is due to speak at 1550 GMT. ($1 = 0.8199 euros) Reporting by Elizabeth Howcroft; additional reporting by Danilo Masoni; Editing by William Maclean, Alex Richardson and Barbara Lewis Our Standards: The Thomson Reuters Trust Principles.