* Bonds rally across credit spectrum, led by peripherals * News article provides excuse to buy back into cheapened markets * Markets likely to remain on edge before next week's Fed meeting By Ana Nicolaci da Costa LONDON, June 14 (Reuters) - Euro zone bonds rallied across the credit spectrum on Friday after sharp losses in recent weeks, as market opinion swayed away from the idea that the U.S. Federal Reserve was likely to scale back monetary stimulus soon. Investors had been looking for an excuse to buy back into cheapened markets, analysts said, and a newspaper article provided one. The Wall Street Journal said an adjustment in the Fed's bond-buying program did not mean that the U.S. central bank would end it "all at once" or that the Fed was "anywhere near raising short-term interest rates." With nerves heightened ahead of a Fed policy meeting next week, some said investors were unwinding their positions after an "excessive" sell-off prompted by Chairman Ben Bernanke's comments. In May, Bernanke told Congress a decision to scale back the $85 billion in bonds the Fed is buying each month could come at one of the central bank's "next few meetings" if the economy looked set to maintain momentum. "The market was looking for a new reason to come back on the buying side," Cyril Regnat, fixed income strategist at Natixis said. "The sell-off has been really massive and with some mixed data in the U.S., maybe investors were waiting for some kind of signal." The rally was led by riskier peripheral debt, with Spanish government bond yields falling 8 basis points to 4.54 percent and the Italian equivalent falling 9.7 bps to 4.26 percent, having both risen last month. Debt issued by more vulnerable Portugal rose even more sharply, with 10-year yields falling 19 bps to 6.34 percent. Borrowing costs of higher-rated euro zone debt also fell. "The market's discussion on Fed policy has been completely and utterly irrational, so divorced from the actual facts of what the Fed has said," Marc Ostwald, strategist at Monument Securities said. "That article basically has calmed nerves temporarily... in principle what it does is encourage people to reach for a bit more yield." Financial markets have been choppy in recent weeks, with trade dominated by views on the timing of a possible Fed exit from ultra-loose monetary policy, making European assets particularly sensitive to U.S. data releases. Investors will get fresh indication of the health of the world's largest economy with data releases later in the session including industrial output and producer prices for May. Figures on Thursday showed U.S. retail sales rose more than expected in May and first-time applications for unemployment benefits fell last week. German Bunds also rallied. Bund futures rose 45 ticks to 143.64, having hit its lowest since mid-February earlier in the week at 142.02.

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