Euro zone bond selloff hits pause, yields fall from multi-year highs

LONDON, Sept 29 (Reuters) - A selloff in euro zone bonds paused on Tuesday, although yields remain close to their highest in years as robust growth and rising energy costs are expected to push global interest rates higher.

Germany's 10-year government bond yield DE10YT=RR was last down 2 basis points at 3.625%. Bond yields move inversely to prices.

The yield on the euro zone benchmark was falling for the first day in six days after rising to its highest level in 17 years on Monday at 3.6526%.

Oil and gas prices remain the biggest driver of euro zone bonds by fuelling concerns that energy-driven inflation could force the European Central Bank to raise rates further.

On Monday, ECB President Christine Lagarde said the central bank views a measured response as appropriate to keep inflation in check. She also flagged that bond market developments, namely rising long-term yields, could slow growth.

"We assess that this means one or two additional hikes from here," Olavi Kaskisaari, economist at Danske Bank, said.

"It also means that the ECB is not in a hurry to hike again, which makes the next hike already in October less likely."

Money market traders are currently pricing in almost four more quarter-point rate hikes, on top of the two moves made over the summer.

Germany's 2-year bond yield DE2YT=RR, which is sensitive to changes in ECB rate expectations, was down about 2 bps at 3.281%, after hitting a 3-year high the day before.

(Reporting by Samuel Indyk; Editing by Andrew Heavens)

((Samuel.Ind))