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The original use appears to have been by the Blue Öyster Cult in 1971. Motörhead and Mötley Crüe then followed.
Queensrÿche went further by putting the umlaut over the 'y' in their name. From a linguistic viewpoint, this might be regarded as an attempt at a diaresis, rather than as an umlaut, were it not for the fact that there are no vowels to be pronounced distinctly.
Spoof band Spinal Tap parodied the idea still further by putting the umlaut over the letter 'n' (some browsers may be able to display this using Unicode: "Spin̈al Tap"). The n-umlaut character does not occur in any known language or belong to any standard character set.
Hawkwind-influenced 1980s space-rock band Underground Zerø used a variation on the concept, using the Scandinavian vowel ø in their name.
In 1997, the parody newspaper, The Onion, published an article "Ünited Stätes Toughens Image With Umlauts" about a congressional attempt to add umlauts to the name of the United States of America to make it seem tougher to the rest of the world.
Recent umlaut sightings: