* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Rewrites throughout, updates prices) May 20 (Reuters) - Italian and Greek bond yields were set for their biggest daily falls in over a month on Thursday as equity markets recovered from a slump a day earlier. Euro area yields led by riskier southern European bonds dropped sharply as stock markets recovered from one of their biggest falls this year on Wednesday, when a crash in cryptocurrencies hit riskier assets. Italy’s 10-year yield was down nearly 6 basis points on the day by 1443 GMT at 1.06%, set for its biggest daily drop since March 11. Bond yields move inversely with prices. Greek 10-year yields fell similarly to 1.03%, also heading for the biggest daily fall since March 11. Richard McGuire, head of rates strategy at Rabobank, said that while the moves resemble a risk-on trade with stocks and lower-rated bonds rallying together, a fall in a key measure of inflation expectations and a drop in oil prices did not support that view. A market gauge of long-term euro zone inflation expectations fell to its lowest in over a week below 1.57%. “(The move) fits the picture of some kind of positioning related development after the recent widening highlighting the value of peripheral debt,” McGuire said. Euro area yields have risen with southern European bonds, which offer higher yields, underperforming since April on uncertainty around when the European Central Bank will slow its pandemic emergency bond purchases as the bloc’s economic outlook improves with faster vaccinations. The ECB’s chief economist Philip Lane said on Thursday that it has a “lot of work to do” to raise inflation to 2%. The German 10-year yield, the benchmark for the bloc, was unchanged at -0.11% after rising earlier. The release of the U.S. Federal Reserve’s minutes on Wednesday, showing some policymakers considering beginning to discuss tapering bond purchases if the U.S. economy continues its rapid progress, had less impact on German bond yields than on U.S. Treasuries. “European investors will look at the ECB and know it is not in the same position as the Fed,” said DZ Bank rates strategist Andy Cossor. “All the recent policy talk from the ECB has not been in the same direction as the Fed, so European investors can be a bit more relaxed about the monetary policy outlook,” he added. After syndicated government bond sales - where investment banks sell the debt directly to end investors - put pressure on bond prices earlier in the week, Thursday’s supply via auction from Spain and France, relatively shorter-dated, was digested more easily. (Reporting by Yoruk Bahceli, additional reporting by Stefano Rebaudo; Editing by Kim Coghill and Susan Fenton) Our Standards: The Thomson Reuters Trust Principles.