(Updates prices for close)
By Abhinav Ramnarayan
LONDON, Oct 12 (Reuters) - Euro zone bond yields edged higher on Wednesday after concerns over a "hard Brexit" receded on reports that Britain's parliament will play a larger role in exit negotiations.
Sterling rebounded from a record low in trade-weighted terms on Wednesday after Britain's prime minister said she would give lawmakers some scrutiny of the Brexit process and would seek "maximum possible access" to Europe's single market.
"It amounts to a reduction of the risk of a 'hard Brexit' where the UK would leave the single market, so it is moving prices today," said Antoine Bouvet, a rates strategist at Mizuho.
He warned, however, that the effect could be temporary.
"I don't think markets will get too carried away, because while it sounds like the UK parliament will be involved in discussions, it's still not clear to what extent this will affect the process," he said.
Given the optimistic tone in European markets, yields on government bonds -- viewed as a safe haven asset -- moved higher, with Germany's 10-year Bund up 3 basis points at a one-month high of 0.07 percent.
In lower-rated euro zone debt, the yield on Spain's 10-year bond rose 5 bps to 1.15 percent, its highest since late July.
Analysts said worries that central banks could be reaching limits should continue to exert upward pressure on yields.
Talk that the European Central Bank might reduce the scale of its asset purchases before the stimulus programme finally ends has particularly unnerved investors in recent days.
Rabobank analysts have updated their ECB monetary policy expectations. They expect the central bank to extend the current programme -- set to end in March 2017 -- by six months, but expect tapering to begin in September 2017.
"It is too early for the ECB to pull the plug on its asset purchases," Rabobank strategist Elwin de Groot said.
"However, we do also see increased concerns in the Council about the need for a well-coordinated exit strategy ... we believe that the ECB will aim to manage expectations of an exit in the somewhat longer term."
The market will be looking for further hints on this in a speech due to be given by ECB board member Yves Mersch on Wednesday evening.
Fellow board member Benoit Coeure on Wednesday morning said that the Eurogroup of euro zone finance ministers is working on a solution to make Greece's public debt sustainable and maintain the International Monetary Fund's involvement in the country's rescue programme.
Ahead of the release of minutes of the U.S Federal Reserve's September meeting later on Wednesday, New York Fed President William Dudley said the central bank can be "gentle" in removing monetary stimulus.
U.S. Federal Reserve officials William Dudley and Esther George are also due to speak ahead of the release of the minutes of the Fed's September meeting. Their comments will be studied by markets for clues on the likely timing of the next increase in U.S. interest rates.
Money markets are pricing in around a 60 percent chance of the U.S. raising interest rates in December, according to CME's FedWatch tool.
For Reuters' new 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 Alison Williams, David Goodman and Alexandra Hudson)