UPDATE 1-ECB's Papademos: Bond yield not related to policy rate

* ECB Papademos: bond yield rise need not herald rate hike

* BOJ Shirakawa: Worst period of economy seems to be over

* Papademos: Economic worsening in euro area slowing

* Papademos: Price falls not posing deflation risks

By Stanley White and Tetsushi Kajimoto

KYOTO, Japan, June 9 (Reuters) - The recent rise in bond yields need not reflect expectations for a rate hike, European Central Bank Vice-President Lucas Papademos said on Tuesday.

Yields on two- and 10-year Treasuries rose on Monday to their highest since November as data suggest the worst may be over for the U.S. economy, fueling expectations among some traders that the Federal Reserve could raise interest rates by the end of this year. Yields on government bonds in Japan and Europe have also been rising as indicators in major economies point to a bottom.

Activity in the euro area will remain weak this year, but the pace of deterioration is slowing as governments' stimulus filters through the region's economies, Papademos told reporters on Tuesday on the sidelines of a conference. Bank of Japan Governor Masaaki Shirakawa, speaking at the same conference, said that the worst was over.

While the ECB doesn't precommit to the future path of interest rates, the central's bank's current benchmark rate of 1.0 percent is appropriate, Papademos said. Prices in the euro area may fall in the coming few months, but that doesn't entail deflation risks, he added.

"Recent increase in bond yields can be a consequence of various factors and need not reflect expectations of increase in short-term interest rates in the future," Papademos told reporters at the International Monetary Conference in Kyoto, western Japan.

Gains in bond yields partly reflect investors' expectations for economic growth and higher inflation. The rise is also a conundrum for some central bankers, because that could translate into higher borrowing costs and slow the pace of recovery. Rising yields may also put more pressure on the Federal Reserve and the Bank of Japan to expand purchases of their own governments' debt and damage their independence as central banks.

Euro zone inflation was at a record low of zero percent in May and is expected to turn negative in the coming months. The ECB's target is to keep inflation below but close to 2 percent.

"Inflation expectations, as measured by a variety of indicators, are firmly anchored to our definition of price stability," Papademos said.

ECB staff predicted on June 4 the euro zone economy could now shrink by up to 5.1 percent this year, compared with their previous worst-case scenario of a 3.2 percent decline. They signalled it would also struggle to grow in 2010 -- forecasting a change in GDP of between -1 percent and +0.4 percent. [ID:nL4997231]

The ECB kept its benchmark interest rate at a record low of 1 percent on June 4 and detailed a programme to purchase 60 billion euros of covered bonds issued by banks in the euro zone. The ECB has cut rates from 4.25 percent since last October.

BOJ Governor Shirakawa, speaking at the same conference, also said on Tuesday that major economies are still in the midst of a big and unprecedented financial crisis. No central bank thinks it can prevent an economic bubble through monetary policy alone, he said according to a copy of the speech posted on the central bank's website.

(Additional reporting by Shigeo Kodama; Editing by Ruth Pitchford)