* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices) LONDON, July 21 (Reuters) - Borrowing costs across the euro area rose on Wednesday, pulling away from multi-month lows hit the previous day. Long-dated sovereign bond yields in the United States and Europe have fallen 6-7 basis points (bps) this week as a surge in COVID-19 variants adds to a sense that economic growth has now peaked and that any pick-up in inflation will prove transitory. European stocks rallied more than 1.5%, while U.S. 10-year Treasury yields rose 8.5 bps. Those moves rippled into European bond markets, where Germany’s 10-year Bund yield reversed early falls. It was last trading 2 bps higher on the day at -0.40% . It had fallen to more than five-month lows on Tuesday at -0.44%. “The moves had gone too far,” said Jan von Gerich, chief analyst at Nordea. “Markets have a tendency of doing that, but it’s dangerous to say it’s over for now until we see more of a stabilisation.” Across the euro area, bond yields were 1-3 bps higher on the day. Germany’s 30-year debt yield was up 3 bps at 0.08% , having fallen to within striking distance of 0% on Tuesday. Earlier, Germany sold 1.23 billion euros of 30-year bonds. As bond markets sold off and oil prices recovered some ground after sharp falls earlier this week, euro zone inflation expectations also recovered. A key gauge of the markets’ long-term euro zone inflation expectations, the five-year, five-year breakeven forward, rose back above 1.60% to its highest in two weeks. “If we’re correct that most of these moves are driven by extreme investor positioning, rather than anything more fundamental, then we’re probably close to the end of the recent bond rally,” said Mike Riddell, head of macro unconstrained at AllianzGI. A note of caution was expected to set in as Thursday’s European Central Bank (ECB) meeting looms. The ECB is widely expected to change its forward policy guidance to reflect a new inflation target following the outcome of a strategy review earlier this month. The ECB now targets inflation at 2% versus close to but below 2% previously. “We have the ECB tomorrow and if they (policymakers) deliver a dovish message we could have more of a rally,” said Nordea’s von Gerich. Reporting by Dhara Ranasinghe, Editing by Angus MacSwan