UPDATE 2-Euro zone bonds steady after German inflation rise

* Euro zone periphery govt bond yields (Adds closing prices, details)

Jan 28 (Reuters) - Euro zone bonds barely moved after Germany’s Federal Statistics Office saying annual consumer prices had turned positive and risen by more than expected in January.

Analysts had expected little reaction to Thursday’s inflation data, which had been forecast to rise back to positive territory due to the expiry of a value-added tax cut Germany implemented in July, as well as higher energy prices.

“The focus right now is elsewhere, specifically the risk off momentum that has been spreading during the course of the week has given bunds a lift,” Christoph Rieger, head of rates and credit research at Commerzbank, said.

Germany’s 10-year yield, the benchmark for the region, was up less than one basis point at -0.543% and remained just above a three-week low by the close.

The market was also focused on Wednesday’s statement from European Central Bank governing council member Klaas Knot, who said the ECB was ready to cut its deposit rate further below zero if necessary to keep its inflation target in sight.

Knot’s comments prompted scrutiny as he is considered a hawkish member of the council, but they were soon largely dismissed by money markets, pricing around a 50% chance of a 10-basis-point rate cut from the ECB in September.

In the primary market, Italian borrowing costs rose to a three-month peak after the resignation of Prime Minister Giuseppe Conte deepened Italy’s political crisis.

Italy’s 10-year yield was unchanged at 0.64%. (Reporting by Yoruk Bahceli in AMSTERDAM and Danilo Masoni in MILAN; Editing by Larry King, William Maclean and Alexander Smith)