3 Min Read
* Bonds recover after Friday's sharp selloff
* Markets rattled by news that ECB discussed higher rates
* Seek clarification from ECB chief Draghi, who speaks later
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds Spain quote, updates prices)
By Dhara Ranasinghe
LONDON, March 13 (Reuters) - Euro zone government bond yields edged off multi-week highs on Monday as European Central Bank chief Mario Draghi remained tight-lipped on policy details after he signalled last week that the urgency for further action was waning.
News on Friday that some ECB policymakers had discussed the possibility of lifting interest rates before ending quantitative easing triggered a sharp sell-off in bonds and a jump in the euro.
Monday began with a calmer tone, with investors reluctant to dump safe-haven debt ahead of Wednesday's closely-watched election in the Netherlands and as Scottish First Minister Nicola Sturgeon said she would seek authority to call a new referendum on independence.
Investors were looking for more clues from a scheduled speech by Draghi in Frankfurt on Monday, but he did not provide any hints on the future direction of monetary policy.
Friday's source-based report said an ECB discussion about lifting rates was brief and that there was no broad support for the idea.
The ECB on Thursday highlighted an improving economic outlook, fuelling speculation that the central bank could start to unwind its monetary stimulus later this year.
"The shift at the ECB is in line with stronger economic fundamentals, but I think we will have to wait until June to see a formal change in the ECB's forward guidance," said Cyril Regnat, fixed income strategist at Natixis.
ECB policymaker Jan Smets was reported by the Wall Street Journal on Monday as saying that last week's rate meeting was not a signal of a coming policy change but a reflection of a "changed reality".
Germany's 10-year government bond yield was down 2 basis points at 0.47 percent, pulling back from five-week highs just shy of 0.50 percent.
Across the euro zone, most yields were 1-5 bps lower. Analysts said the hefty sell-off on Friday was tempting some investors back into the market.
Spain was an exception: the country's 10-year borrowing costs rose 3 bps to 1.90 percent, the highest since the day after the Brexit vote in June 2016, after the Scottish referendum news put the focus on Catalonia.
Investors now expect the ECB to raise interest rates by March 2018 and see inflation rising higher.
A market gauge of long-term euro zone inflation, the five-year, five-year breakeven forward rate, almost touched 1.74 percent on Monday -- its highest in more than two weeks. Investors expect the ECB to raise rates by March 2018, according to money market futures.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Editing by Catherine Evans