(New throughout, updates prices, yields, market activity, adds ECB minutes) Oct 7 (Reuters) - Euro zone bond yields fell on Thursday as energy prices held below recent peaks, easing fears of inflation and allowing debt markets to recover from the previous session’s sharp sell-off. On Wednesday, gas and oil prices shot up and bonds sold off. Yields, which move inversely with prices, rose sharply on worries that the price rises would stoke already high inflation. But gas and oil prices fell back after comments from Russian President Vladimir Putin and an unexpected rise in U.S. crude inventories. Bond investors also breathed easier as Democrats in the U.S. Senate said they might accept a Republican proposal to defuse the stand-off that threatened a U.S. debt default this month. Germany’s 10-year Bund yield was last down 1 basis points at -0.19%, below the highest since end-June at -0.147% hit on Wednesday. Italian bonds, which underperformed on Wednesday, were outperformers on Thursday. Ten-year yields fell 4.5 bps to 0.85%, pushing the yield gap with German peers to around 104 bps, from Wednesday’s one-week high at 108 bps. A key market gauge of euro inflation expectations fell to 1.7633%, the lowest in over a week and some 10 bps below seven-year highs touched on Wednesday. Falling energy prices helped stabilize bond markets, but, “ultimately, through that noise, we think rates are going up,” said ING senior rates strategist Antoine Bouvet. Bouvet stressed the risks arising from hawkish turns from the U.S. Federal Reserve, the Bank of England and the European Central Bank. Last month, ECB policymakers debated a bigger cut in asset purchases and harboured greater inflation concerns than their post-meeting communication suggested, accounts of the Sept. 9 discussions showed. “We agree that the recent strength of inflation has shifted the balance of risks upwards,” said Jack Allen-Reynolds, senior Europe economist at Capital Economics. ECB board member Isabel Schnabel said inflation could stay high next year. There was also some focus on a Bloomberg News report citing sources that the ECB is studying a new bond-buying programme to prevent market turmoil when its pandemic emergency bond purchase programme (PEPP) expires next year. Any new programme would replace the PEPP as well as the ECB’s conventional bond purchases and would circumvent rules governing how much of each country’s debt the ECB would buy, the report said, adding no decision has been made. “It’s not by chance that it comes out now ahead of a very important December (policy) meeting,” ING’s Bouvet said. There was little market reaction to the report, but Bouvet said parameters of any new programme would be crucial. Elsewhere, Spain and France raised medium and long-dated bonds at auctions. (Reporting by Yoruk Bahceli; Additional reporting by Dhara Ranasinghe; Editing by Alison Williams, Toby Chopra and David Gregorio) Our Standards: The Thomson Reuters Trust Principles.