* German consumer confidence slips, Italy to revise GDP
* Bund yields below 0.90 percent, Euribor rates seen falling
* Germany's Schaeuble says Draghi comments 'over-interpreted' (Updates prices into close, adds new quote)
By John Geddie
LONDON, Aug 27 German Bund yields reached record lows on Wednesday, as further evidence of the region's faltering economy fed market expectations for more European Central Bank stimulus.
Weaker-than-expected consumer confidence in Germany drove the market, together with comments from Italy's economy minister that Rome must lower its economic growth forecast.
In a bid to tackle the euro zone's economic malaise, ECB President Mario Draghi on Friday appeared to shift the bank's policy response towards growth. Crucially for investors, he left the door open for a large-scale programme of asset purchases known as quantitative easing (QE).
"When the ...(euro zone's) largest economy is falling behind, this is very much increasing the chances of the ECB heading for further monetary measures, above all QE," said DZ Bank strategist Daniel Lenz.
German Bund futures climbed to record highs of 151.47, up 65 ticks on the day. Ten 10-year cash Bund yields fell to a record low of 0.896 percent, having dropped over 100 bps since the start of the year.
Spanish and Italian bond yields both fell to record lows for the third consecutive day to 2.087 percent and 2.346 percent, respectively.
With Draghi particularly concerned about the decline in market expectations for inflation, the latest consumer price data for Germany due on Thursday and then for the entire euro zone on Friday will be closely watched.
'ALL THE RIGHT NOISES'
Only a handful of strategists expect the ECB to announce further policy action at its meeting next week, but one trader said investors will be "hoping for all the right noises".
Brokers say large volumes of options are being purchased by investors betting that Euribor rates, the benchmark for euro zone bank-to-bank lending, will fall in the coming months as a result of ECB rates cuts or a surge in spare cash in the system.
In a note to clients, JPMorgan said it expected the ECB to cut rates at next week's meeting and reduce the interest it plans to charge on a new set of emergency loans (TLTROs) it will make available to banks next month.
But there is room for disappointment for those hoping for more easing. Germany's Finance Minister Wolfgang Schaeuble told a newspaper on Wednesday that Draghi's comments had been "over-interpreted", particularly in reference to fiscal policy playing a greater role in promoting growth.
Austrian bond yields dipped 5 bps to 1.13 percent after a report late on Tuesday that Austria's conservative People's Party had picked Economy Minister Reinhold Mitterlehner to replace Michael Spindelegger as party leader.
Spindelegger resigned unexpectedly in a row over tax reform. He refused to cut taxes unless the cuts could be financed without new levies.
His departure comes amid a political battle in Europe over whether belt-tightening has gone too far at the expense of economic growth. The same clash forced a government reshuffle in France this week.
"There are the shifts we are seeing in Europe from both fiscal and monetary policy makers," said Simon Smith, chief economist at FXPro.
"ECB President Draghi was more pointed on deflation risks last week, whilst we have seen a more vocal push against the austerity policies of the past, most recently from France." (Additional reporting by Marius Zaharia)