MONEY MARKETS-Dovish ECB persuades money markets to tame rate hike bets

* Dec (Shanghai: 600875.SS - news) rate hike bets almost fully priced out by markets

* Markets price in 80 pct chance of rate hike by March 2019

By Dhara Ranasinghe

LONDON, March 13 (Reuters) - Investors have moved to pricing in a March 2019 rate rise by the European Central Bank, whose dovish, go-slow message has persuaded markets to wipe out bets on an earlier move.

The ECB boosted markets' rate-hike expectations at the turn of the year with hawkish rhetoric, but it has since stressed that its exit from its ultra-easy monetary policy will be very slow.

That in turn has prompted investors to tame their most aggressive rate hike bets. Expectations for a rate rise as early as this December, which reached a peak in January, have been virtually erased.

The timing for what would be the ECB's first rate rise since 2011 now falls on March 2019, judging by money market pricing.

The difference between the overnight bank-to-bank interest rate in the euro area (Eonia) and forward Eonia rates, a closely followed gauge of market rate expectations, show that about 8 basis points worth of rate hikes is priced in by March next year.

That equates to roughly a 80 percent chance of a 10-basis-point rate hike, analysts say.

The ECB's deposit rate is at minus 0.40 percent.

"In terms of timing, the market is running a bit ahead of itself, but it's still pricing in very gradual normalisation of interest rates," said Martin van Vliet, senior rates strategist at ING.

Indeed, while money markets appear to have pushed back expectations for the first ECB rate hike in this economic cycle, they are still anticipating a move before most economists.

According to a recent Reuters poll, economists forecast the ECB will raise the deposit rate by 15 basis points to -0.25 percent in the second quarter next year and take it to zero by end-2019.

The ECB last week dropped a pledge to increase bond buys if necessary but signalled a slow route out of its 2.55 trillion- euro ($3.16 trillion) asset-purchase scheme.

ECB staff offered policymakers meeting last week a scenario where rates would be raised in mid-2019 after bond purchases were wound down at the end of this year, three sources told Reuters on Friday.

The dichotomy facing the ECB is that economic growth is robust, but inflation remains weak, and well below the ECB's near 2 percent target. ECB chief Mario Draghi said that inflation would hover around 1.5 percent for the rest of this year and even in 2020 only rise to 1.7 percent.

"The ECB is far from declaring victory on inflation, which means that investors have had to rethink earlier rate-hike expectations," said Kim Liu, senior fixed income strategist at ABN AMRO.

"Earlier expectations for a December rate hike have been almost fully priced out, which means the track record for Draghi pushing out rate hike expectations is much better than pushing down the euro."

(Reporting by Dhara Ranasinghe, editing by Larry King)