* Lower-rated euro zone debt yields bounce off multi-year lows
* ECB's Nowotny says no need for immediate ECB action
* Market still expect stimulus measures from ECB
* Greek yields hover around 4-year lows despite Moody's inaction (Recasts with rise in euro zone debt yields, Nowotny comments)
By Emelia Sithole-Matarise
LONDON, April 7 Lower-rated euro zone bond yields rose from multi-year lows on Monday after comments by European Central Bank policymaker Ewald Nowotny tempered market exuberance over potential asset purchases by the bank.
Nowotny said the ECB has no immediate need to take steps to counter stubbornly low inflation because a strengthening of Europe's economy should reduce the danger of deflation.
His colleague Yves Mersch said the bank was drawing up plans for large-scale asset purchases in case they were needed, but there was some way to go before that point.
The remarks prompted some investors to take profits in lower-rated bond markets following their sharp outperformance last week after ECB President Mario Draghi signalled the bank could print new money if inflation remains persistenly low.
Spanish 10-year yields rose 8 basis points to 3.21 percent with some traders citing domestic and Asian investor selling after a relentless rally this year which pushed the yields to 8-1/2-year lows.
Italian equivalents were trading at a similar level, down 3 bps on the day, having hit a new record low earlier in the day, before Nowotny and Mersch's comments.
Many in the market see these moves as a temporary setback, with the ECB still expected to ease monetary policy later this year, supporting investors' hunt for higher returns in peripheraly euro zone bonds.
"There's some volatility after the Nowotny comments which shows the market is still digesting the QE outlook for the ECB," said Michael Leister, a strategist at Commerzbank.
"The market is keen to speculate on QE and the next inflation print is still some time away ... In the meantime we can easily see yields testing the lows again or even printing new lows," he added.
Many in the bond market took a German newspaper report on Friday that the ECB had modelled the effects of buying a trillion euros of assets to ward off deflation as adding weight to the prospects of QE from the bank.
The Frankfurter Allgemeine Zeitung report, however, said one model showed 1 trillion euros of asset purchases spread over a year would boost inflation by just 0.2 percentage points, while another pointed to a 0.8 percentage point uplift.
GREECE IN NO RUSH TO MARKET
Greek 10-year yields were also slightly up, having hit new four-year lows earlier as investors shrugged off the lack of a statement from Moody's on Friday, when it was widely expected to give an update of the country's credit ratings. Under new EU rules, rating agencies are required to lay out the dates on which they review a country's creditworthiness.
Some market participants had expected Moody's to lift Greece's ratings by as much as two notches from Caa3, which is nine notches below investment grade. Standard & Poor's and Fitch rank Greece six notches below investment grade at B-.
Demand for the country's debt remained intact as investors looked in coming months to Greece's return to the market two years after it defaulted.
Greece has lined up a group of banks for the five-year bond issue, prompting speculation a sale could come as soon as this week, but Finance Minister Yannis Stourmaras said there was no rush, reiterating that a sale will happen in the first half of the year.
Greek 10-year yields were 2 bps higher on the day at 6.17 percent, having fallen fallen as much as 50 basis points over the past week.
"The Greek government bond market is doing well and investors are just looking for yield pick-up with the ECB's accommodative stance at this juncture," said RIA Capital Market strategist Nick Stamenkovic. (Editing by Andrew Heavens)