UPDATE 2-Euro zone yields rise, periphery's bonds underperform

* Euro zone periphery govt bond yields (Recasts, adds analyst comments, background)

June 25 (Reuters) - Euro zone yields rose on Friday tracking a move in U.S. Treasuries after data, with periphery’s bonds underperforming as investors digested further supply.

The U.S. Federal Reserve’s preferred inflation measure posted its biggest annual increase since 1992. Analysts said the central bank would probably stick to its plan to raise interest rates twice in 2023 and begin tapering support of the bond market.

Weakness among peripheral or semi-core bonds “is mostly related to new auctions announced by Italy, Spain, and also France,” said Massimiliano Maxia, senior fixed income specialist at Allianz Global Investors.

“The BTPs staged an excellent performance recently -- almost 30 bps -- and now investors are taking some profit off the table to make room for the new bond issuance,” he added.

In the primary market, Italy raised 3.75 billion euros from the auction of a bond due Nov 2022 and an inflation-linked 30-year bond in an auction.

Southern European bond yields rose, and Italian bonds underperformed the market, with 10-year yields up nearly 6 basis points to 0.92% at 1528 GMT, after setting a new high since end of May.

Friday’s auction followed the sale of a seven-year floating-rate note that raised 6 billion euros on Thursday via syndication.

France’s, Portugal’s and Spain’s 10-year bond yields were up 4.5 basis points.

Germany’s government bond yields, the benchmark for the euro area, still rose on the back of U.S. Treasuries after data.

U.S. consumer spending paused in May as shortages weighed on motor vehicle purchases, but the supply constraints and increased demand for services boosted inflation.

“While headline readings for income and spending may not look great, the underlying story is one of a household sector that is in a very healthy position,” ING analysts said referring to U.S. data released on Friday.

“With the economy re-opening, consumer demand will continue to drive growth, but the inflation threat is not going to disappear quickly,” they added.

Germany’s 10-year yield was up a 3 basis point to -0.155%.

A significant global bond market correction is likely in the next three months as central bankers eye the exit door from pandemic emergency policy, according to a Reuters poll of strategists who also forecast modestly higher yields in a year.

Late on Thursday, European Central Bank board member Isabel Schnabel said the bank could not transfer the full flexibility of its pandemic emergency bond purchases, which run out in 2022, to its conventional bond purchases.

Reporting by Stefano Rebaudo and Yoruk Bahceli; Editing by David Gregorio