Markets rally as ECB pledges to buy bonds beyond 2016 if needed

* Euro hits 11-1/2-year low vs dollar

* Draghi says may buy bonds beyong 2016

* Linkers lead broad fall in yields (Recasts and writes through)

By John Geddie

LONDON, March 5 (Reuters) - Euro zone financial markets rallied on Thursday after European Central Bank chief Mario Draghi pledged to buy government bonds beyond 2016 if necessary to achieve the goal of reflating the economy.

Bond yields fell further and the euro hit its weakest against the dollar in more than 11 years after Draghi put flesh on the bones of a trillion-euro-plus scheme that has already sent euro zone government borrowing costs to record lows.

Speaking after its latest policy meeting, Draghi said the ECB would begin buying sovereign debt from Monday. In an echo of his game-changing promise to do "whatever it takes" to save the euro, Draghi said buying would continue until inflation was on course for the ECB's target just below 2 percent.

He also dismissed concerns that the ECB might struggle to meet its 60 billion euro a month buy-back target if some investors are reluctant to sell due to regulation or long-term commitments to clients.

"Mr Draghi is showing that the ECB is determined to continue until it gets the results it needs. They are perfectly aware that they cannot afford to fail," Allianz Global Investors senior fixed income portfolio manager, Mauro Vittorangeli, said.

Euro zone bond yields fell across the board, except those on German two-year debt, which nudged above the ECB's deposit rate of minus 0.2 percent, after Draghi said the central bank would not buy bonds with yields below that rate.

Yields on inflation-linked bonds, also known as linkers, fell even further, in what some said was a sign of investor faith that the scheme would achieve its aims of boosting inflation and growth.

French, Italian and German linker yields fell as much as 18 basis points (bps), led by Italian bonds which have been buoyed both by imminent ECB buying and their coming reinstatement in Barclays Capital's benchmark inflation-linked index at the end of March.

The euro came close to dropping below $1.10, hitting a low of $1.10050, down 0.6 percent on the day. Against the pound, the euro fell 0.4 percent to 72.23 pence, its lowest level since December 2008.

In stock markets, the pan-European FTSEurofirst 300 index surged to its highest level since November 2007, trading up 0.9 percent on the day.

Signalling confidence its scheme will work, the ECB lifted its inflation forecasts for coming years.

Although it cut its projection for inflation to zero in 2015, it raised its 2016 forecast to 1.5 percent from December's 1.3 percent. It sees inflation rising to 1.8 percent - near the ECB's target of just under 2 percent - in 2017.

In the lead-up to the ECB meeting, market gauges of consumer price growth hit their highest this year.

But for some, even this optimism only underlined that the ECB may have to do more.

"By saying they will only reach 1.8 percent in 2017 they're implicitly saying that they might continue to inject money in the market after mid-2016," JPMorgan Asset Management global market strategist, Vincent Juvyns, said.

(Additonal reporting by Marius Zaharia and Emelia Sithole-Matarise; Editing by Nigel Stephenson and Louise Ireland)