UPDATE 3-Euro zone bond yields drop from recent highs in cautious markets

(Updated at 1519 GMT)

By Samuel Indyk and Stefano Rebaudo

LONDON, June 8 (Reuters) - Euro zone government bond yields edged down from their recent highs on Thursday with investors cautious ahead of central bank policy meetings next week.

Germany's policy-sensitive 2-year yield briefly hit 3% in early trade, having risen 8 bps the day before after the Bank of Canada (BoC) raised rates in a move which served as a reminder that the fight against inflation is not yet won.

It was last down 2.5 bps at 2.95%.

"There is not much movement today despite the BoC decision," said Antoine Bouvet, head of European rates strategy at ING.

"We have to consider that we are close to the yield highs, investors are cautious before central bank decisions, and there is still a lot of supply to be digested, especially in the U.S.," he added.

The U.S. Federal Reserve is next week expected to refrain from tightening policy for the first time since January 2022, while the European Central Bank is seen raising rates by 25 bps.

U.S. Treasury yields fell on Thursday after economic data, applying some downward pressure to the euro area's borrowing costs.

The number of Americans filing new claims for unemployment benefits surged last week putting a halt to a steady rise in yields this week as the market slowly accepted Fed signals that rates will be higher for longer.

The BoC and the Reserve Bank of Australia were two of the first major central banks to pause their tightening cycle and some analysts said their decisions to resume raising rates this week could prompt others to keep hiking.

"Other central banks will be thinking twice before pausing," said Anders Svendsen, chief analyst at Nordea.

"They will be looking at Canada and Australia, thinking there might be a risk that not enough has been done to bring supply and demand back into balance," he said.

Germany's 10-year yield, the benchmark for the euro zone, was last down 2.5 bps at 2.42%, having risen 7.5 bps after the BoC decision on Wednesday.

The ECB has raised its deposit rate by a combined 375 basis points since mid-2022 in an attempt to tame inflation, taking the rate to 3.25%.

ECB euro short-term rate (ESTR) forwards price a deposit rate peaking around 3.8% in November this year, suggesting at least two more 25-basis-point rate increases.

"BoC (and RBA) hikes do not change our view of the Fed or the ECB," said Jefferies interest rate strategist Mohit Kumar.

"However, they do support our view that inflation would be sticky for longer than what central banks want which would rule out any cuts in 2023."

Comments from ECB officials have also pressured bond prices this week, although policymakers are now in their quiet period ahead of next Thursday's policy announcement. Bond yields move inversely to prices.

"ECB speakers in the last couple of days have been slightly hawkish," Nordea's Svendsen said.

"It seems clear we will get a 25 basis point move at the next meeting. I don't think expectations can move much more."

Bond markets did not react to news that the euro area was in a technical recession, after downward revisions to growth in both the first quarter of this year and final quarter of 2022.

(Reporting by Samuel Indyk and Stefano Rebaudo; Editing by Amanda Cooper, Emelia Sithole-Matarise and Susan Fenton)