Euro, bond yields fall after sources say Draghi comments overinterpreted

LONDON (Reuters) - The euro dipped and government bond yields across the single-currency bloc gave up earlier rises on Wednesday after euro zone central bank sources told Reuters the market had overinterpreted comments from ECB chief Mario Draghi.

Draghi intended to signal tolerance for a period of weaker inflation, not an imminent policy tightening, when his comments on Tuesday rattled markets, sources familiar with Draghi's thinking said. The ECB declined to comment.

The euro fell as low as $1.1290, a cent down from earlier peaks. Germany's 10-year bond yield - Europe's benchmark - came off a one-month high of 0.41 percent to trade flat on the day at 0.35 percent.

The pan-European STOXX 600 briefly turned positive on the report, and was last trading flat after languishing in the red since the open. Euro zone stocks and blue chips also rose on the report, and were last down less than 0.1 percent.

On Tuesday, the euro rose more than 1 percent to a nine-month high while Germany's 10-year borrowing costs came close to doubling after Draghi gave a speech highlighting a recovering economy.

"The market is looking for any read on the timing of tapering and maybe overinterpreted Draghi's speech," said Rabobank strategist Lyn Graham-Taylor. "When I read his speech yesterday I thought the reaction was quite a violent one given what was actually said."

The euro has risen over 10 percent against the dollar since January, as diminishing European political risk and improving economic data have given investors impetus to buy the currency. It was steady on the day at $1.1337.

(Reporting by London Markets team, editing by Nigel Stephenson)