* Spain, German inflation data push most yields down
* Praet: ECB not convinced recent inflation rise durable
* Euro zone periphery bond yields tmsnrt.rs/2ii2Bqr (Updates prices for close)
By Dhara Ranasinghe
LONDON, March 30 (Reuters) - Borrowing costs in benchmark euro zone bond issuer Germany fell to three-week lows on Thursday, as softer-than-expected German inflation numbers helped dampen speculation that an unwinding of ECB stimulus could come sooner rather than later.
Bond yields fell sharply across the bloc on Wednesday following a Reuters report that European Central Bank officials are wary of making any new change to their policy message in April after small tweaks this month unsettled markets.
ECB officials appeared to follow up on that on Thursday, with chief economist Peter Praet saying the euro zone economy is picking up strength but the ECB is still not yet convinced that the recent inflation rise will be durable.
Ewald Nowotny, another ECB policymaker, said the central bank did not want to raise rates prematurely.
A fall in bond yields gathered pace after data showed German consumer prices rose by 1.5 percent on the year in March after reaching a 4-1/2 year high of 2.2 percent in February.
That followed weaker-than-anticipated inflation data from German states such as Saxony.
"The German inflation data is a reminder that there is no clear upward trend in underlying inflation yet," Daiwa Securities head of economic research, Chris Scicluna, said.
"Markets shouldn't discount the ECB's forward guidance."
Germany's 10-year government bond yield fell 2.5 basis points to a three-week low of 0.32 percent.
They closed slightly above that at 0.33 percent, creeping higher with U.S. Treasury yields after U.S. growth data for the fourth quarter was revised higher.
Dutch 10-year bond yields also briefly hit three-week lows at 0.42 percent, French yields touched four-week lows at 0.91 percent, and Spanish yields dipped to a one-month low at 1.62 percent
Data from Spain, the euro zone's fourth biggest economy, showed consumer prices rose 2.1 percent year-on-year in March, compared with a Reuters poll forecast of 2.7 percent.
Yields across the euro zone had opened slightly higher after overnight comments from two U.S. Federal Reserve officials raised the prospect of a pick-up in the pace of interest-rate hikes in the world's biggest economy.
But those moves proved short-lived as the market's focus turned back to the ECB policy outlook.
Speculation about an eventual unwinding of the ECB's ultra-loose monetary policy had gathered pace in recent weeks. At its March meeting, ECB President Mario Draghi said its sense of urgency was over and some policymakers had raised the prospect of a rate rise before quantitative easing ends.
But according to Wednesday's source-based report, one official said the ECB had been overinterpreted by markets at its March 9 meeting.
"My take is that the ECB concluded that enough is enough and stepped up its verbal intervention campaign to play down the speculation," ING senior rates strategist, Martin van Vliet, said.
Money market rates suggest a roughly 50-percent chance of an ECB rate rise in December. That is down from 70 percent earlier this week.
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 Louise Ireland