* Draghi highlights soft inflation outlook
* Euro falls below $1.07
* US-German 5-year bond yield spread widest since 1999
By Jamie McGeever
LONDON, Nov 12 (Reuters) - A signal from European Central Bank president Mario Draghi that further policy easing is coming next month drove European markets on Thursday, sparking a brief rebound in stocks and pushing the euro and bond yields lower.
In an address to the European Parliament Draghi said inflation dynamics had somewhat weakened and that a "sustained normalisation" of inflation could take longer to achieve than thought.
"At our December monetary policy meeting, we will re-examine the degree of monetary policy accommodation," Draghi said.
Stocks reversed earlier losses, although high-profile corporate profit warnings eventually weighed on sentiment, while the euro sank half a percent below $1.07 and the gap between 5-year U.S. and euro zone bond yields hit its highest since 1999.
"It now seems likely that the present stimulus programme could be extended beyond September 2016 and the spectre of negative rates could well be imminent," said Brenda Kelly, head analyst at London Capital Group.
"As we have come to expect from the head of the ECB, Draghi is leaning towards pro-action rather than reaction," she said.
In see-saw trading the pan-European FTSEuroFirst 300 .FTEU3 was down 0.3 percent at 1,489 points, having opened even lower then snapping back on Draghi's comments.
Germany's DAX .GDAXI was also down 0.3 percent at 10,877 points and France's CAC 40 .FCHI and Britain's FTSE 100 .FTSE were both down 0.5 percent.
The talk of the stock market was British engine-maker Rolls-Royce RR.L , which issued its fourth profit warning in just over a year. Its shares plunged around 20 percent.
U.S. stock futures pointed to a slightly higher open on Wall Street ESc1 .
Earlier in Asia, stocks shrugged off the overnight fall on Wall Street as oil bounced back from its lowest in over two months and a bumper Australian employment report sent out encouraging signals on the region's economy.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.9 percent, while Japan's Nikkei ended flat on the day .N225 .
The biggest move across major Asian markets was the Australian dollar, which jumped more than 1 percent to $0.7150 AUD= after figures showed that the country's economy created 58,600 jobs last month.
MIND THE YIELD GAP
In bond markets German and other European yields fell on the back of Draghi's remarks, which trumped ECB executive board member Benoit Coeure's more cautious comments earlier that the debate on more stimulus next month was still open.
German 10-year yields fell 2 basis point to 0.59 percent DE10YT=TWEB , having initially risen 1 bp. All other euro zone yields were 1-4 bps lower on the day.
Expectations for ECB easing are in sharp contrast to those for U.S. monetary policy. Most investors are betting that last Friday's stellar U.S. employment report has set the seal on the Federal Reserve raising rates at its meeting next month.
Illustrating that divergence, the gap between U.S. US5YT=RR and German five-year yields DE5YT=RR rose to 181 basis points, the highest since 1999.
"If we have learned something about Mr. Draghi it is that he does not like to disappoint markets. He will not want to see a negative reaction after his decision in December," said KBC strategist Piet Lammens.
The euro fell more than half a cent to as low as $1.0691 EUR= , and hit a three-month low against sterling at 70.41 pence EURGBP=D4 . At 0930 GMT the single currency had recovered a good chunk of these losses.
The dollar index .DXY , which tracks the currency against a basket of six major peers, edged up 0.1 percent to 99.03, moving back towards a seven-month peak of 99.504 scaled on Tuesday.
The dollar edged up to 123 yen JPY= against its Japanese counterpart, back within sight of this week's 2-1/2-month high of 123.60.
U.S. crude futures CLc1 were higher in Europe, bouncing back from a 3 percent slide overnight on worries about higher crude inventories. They were last up about 0.4 percent at $43.09 a barrel. Brent crude LCOc1 added 0.3 percent to $45.94 though was still not far from its lowest levels since August.