* Stocks dip in Europe and Asia on ECB taper talk
* "Hard Brexit" worries push sterling to 31-year low
* Gold edges up but stays near three-month low
* Oil rises on report of U.S. inventory draw
By Nigel Stephenson
LONDON, Oct 5 (Reuters) - The prospect of the European Central Bank eventually winding down its bond-buying stimulus programme rattled investors on Wednesday, dragging stocks lower in Europe and Asia and pushing up government bond yields.
Hawkish comments from Federal Reserve officials also saw markets firm up expectations of a U.S. rate rise before year-end, pushing the dollar higher and gold to three-month lows overnight.
Britain's pound, meanwhile, hit a three-decade low against the dollar, trading below $1.27 for the first time since 1985, and a five-year low versus the euro on concern Britain could be heading for a "hard Brexit" that would see it leave the European Union's single market when it quits the bloc, possibly in early 2019.
Oil prices rose strongly. Benchmark Brent crude
However, the chief driver for the market malaise was a Bloomberg report on Tuesday that the ECB would probably wind down its 80 billion euro ($90 billion) monthly bond purchases before ending its quantitative easing programme.
This would mean a taper, following the Fed's earlier pattern, rather than a sudden ending.
ECB media officer Michael Steen later tweeted that the central bank's decision-making body had not discussed reducing the pace of its monthly bond buying. report comes as investors are wondering whether the central bank asset-buying stimulus programmes that have buoyed markets across the globe are reaching their limits.
ECB President Mario Draghi confounded the expectations of many in markets when he said after the bank's last meeting that policymakers had not discussed extending its scheme.
"The spokesman denied the story but there is probably some meat on the bone. They may extend by six months and then taper but the fact they are talking of getting out of it tells us the ridiculous levels on bund yields is not going to persist indefinitely," said Commerzbank (DE:CBKG) analyst Peter Kinsella.
European stocks opened lower. The pan-European STOXX index .STOXX fell 0.7 percent, having risen 0.8 percent on Tuesday.
Deutsche Bank DBKGn.DE , which like other euro zone lenders has had its profitability questioned by the ECB's ultra-low interest rates, recovered further from record lows hit last week in the wake of a $14 billion claim by the U.S. authorities over alleged mis-selling of mortgage backed securities.
German markets newsletter Platow Brief reported Deutsche was hoping for a settlement of $4-5 billion by end-October.
Deutsche shares were up 0.7 percent at 11.82 euros.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.3 percent. Japan's Nikkei .N225 closed up 0.5 percent, aided by a weaker yen.
German 10-year government bond yields DE10YT=TWEB rose 3 basis points to minus 0.05 percent. Equivalent yields in Italy IT10YT=TWEB rose 6 bps to 1.32 percent.
The dollar pulled back from Tuesday highs hit after Chicago Fed President Charles Evans said he would be "fine" with raising interest rates by year-end if economic data stayed firm.
Traders are pricing in a 63 percent chance of a rate hike in December, according to the CME Group's FedWatch tool.
DOLLAR DOWN
The dollar fell 0.2 percent against a basket of currencies .DXY . The euro was up 0.2 percent at $1.1220 EUR= and the yen was up 0.1 percent at 102.82 per dollar.
"We do not think the ECB is anywhere close to tapering its asset purchase programme, but in the near term momentum is towards euro upside," said Nomura currency strategist Yujiro Goto.
Sterling GBP= rose 0.1 percent to $1.2732, having fallen as far as $1.2683. Prime Minister Theresa May said on Sunday the formal process to take Britain out of the EU would begin next March, adding on Tuesday there would be "bumps in the road". ($1 = 0.8906 euros)