CORRECTED-EU launches unemployment bonds into "challenging" market

(Corrects last paragraph to say GDP reading is second estimate)

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

By Yoruk Bahceli

May 18 (Reuters) - The European Union launched bonds on Tuesday that could complete the bulk of funding for its SURE unemployment scheme, against a tough market backdrop in which government bond yields hit multi-month highs a day ago.

The EU started the sale of new eight and 25-year social bonds on Tuesday, according to Refinitiv capital markets news service IFR.

The bloc plans to raise 13-15 billion euros out of a total 19 billion euros remaining for the SURE unemployment scheme during the second quarter, according to its most recent investor presentation, and analysts expect it to try to largely complete the funding with Tuesday's sale.

Funds raised under the SURE scheme, which is one of the EU's coronavirus recovery programmes, are directly linked to disbursements to member states ringfenced for combating unemployment.

The sale follows a big sell-off in euro area government bonds on Monday driven by speculation that the ECB may slow its pandemic emergency bond buying and concerns over Italy's economic reform path.

That drove Italy's bond yields to their highest in over eight months on Monday, while "semi-core" bonds including from France and supranationals like the EU underperformed benchmark German ones. Bond yields move inversely with prices.

Christoph Rieger, head of rates and credit research at Commerzbank, called the backdrop for the SURE bonds "challenging".

Euro zone bond markets were calmer on Tuesday, with Germany's 10-year yield, the benchmark for the region, up less than one basis point at -0.11% at 0711 GMT.

Italian 10-year yields were up similarly at 1.12%, keeping the closely watched risk premium over German bonds at 122 bps.

Also on Tuesday, Germany will raise 6 billion euros from an auction of two-year bonds.

On the data front, the second estimate for EU gross domestic product data for the first quarter is due at 0900 GMT, with a Reuters poll expecting no change from the previous an earlier estimate.

(Reporting by Yoruk Bahceli; editing by John Stonestreet)