Euro zone bond yields hit new multi-year highs

LONDON, Sept 27 (Reuters) - Euro zone government bond yields rose to new multi-year highs on Tuesday as investors positioned for more interest rate rises and the impact from the UK's "mini budget" continued to reverberate around financial markets.

In early European trading, yields rose between 2 and 5 basis points in most markets, with the German 10-year yield briefly at a new nearly 11-year high of 2.142%.

Italian yields rose more markedly with the 10-year yield up 8 basis points at 4.6% after briefly topping 4.7%, following big moves on Monday after a rightist coalition won a clear majority in Sunday's elections.

Giorgia Meloni looks set to become Italy's first female prime minister at the head of its most right-wing government since World War Two, inheriting one of the euro zone's biggest debt burdens at a time of rising interest rates and slowing economic growth.

Four members of the European Central Bank Governing Council (GC) are due to speak on Tuesday. UniCredit analysts note that this includes two members at the dovish end and two considered centrists of current monetary policy.

"It will be interesting to see if and how their rhetoric will shed any light on the debate within the GC after the big (and strangely unanimous) hike of 75 basis points earlier this month," the analysts said in a research note.

U.S. Federal Reserve officials on Monday sounded another hawkish note, saying their priority remained controlling domestic inflation, even with elevated market volatility.

The closely watched spread between Italian and German yields widened to as high as 265 basis points in initial trading before falling below 250 bps, still the highest since July.

Markets will be watching closely for the ECB's take on the rise in Italian yields. On Monday ECB President Christine Lagarde said the bank won't use its latest emergency scheme to buy the bonds of countries that make "policy errors", in response to a question about Italy's likely next government.

Investors were also in a nervous mood after the dramatic selloff in British government bonds sparked by a series of tax cuts the UK government announced Friday that would be paid for by more public borrowing. The prospect of tens of billions of pound more in borrowing rattled markets and sent sterling to record lows.

Expectations for interest rate rises have soared in recent days, which some analysts say have gone too far.

"We see a reasonable chance that investors will regard those peak levels as toppish and that there is little incentive to price in even higher expectations at this stage. Growth worries appear to have been completely ignored in recent days," UniCredit analysts said. (Reporting by Tommy Reggiori Wilkes; editing by Jason Neely)