* S&P ratings lift for Ireland adds to buoyant mood
* Other peripheral yields at historic lows on ECB stimulus
* Spanish 10-year yields fall below U.S. T-notes
(Updates prices, adds comments)
LONDON, June 9 (Reuters) - Irish bond yields dipped to a record low on Monday after Standard & Poor's upgraded the country's credit ratings, adding to the buoyant mood in peripheral euro zone debt triggered by fresh European Central Bank stimulus.
Other peripheral euro zone bond yields also hit the latest in a series of historic lows, with Spanish 10-year yields falling below those of U.S. Treasuries for the first time since April 2010.
Italian five-year yields were also below U.S. equivalents, highlighting the policy divergence between the ECB and the Federal Reserve, which is reining in its monetary stimulus.
ECB Executive Board member Benoit Coeure said at the weekend that euro zone interest rates would diverge for a number of years from those in the United States and Britain, whose central banks would at some point raise rates.
S&P's upgrade of Ireland's credit standing to A- from BBB+ late on Friday fostered the euro zone rally. The ratings agency said it could upgrade Ireland further if data confirmed the country's economic recovery and that fiscal deficits had fallen below 3 percent of gross domestic product.
S&P also affirmed Italy's rating at "BBB/A-2" with a negative outlook. Moody's is scheduled to review Italy on Friday.
Irish 10-year yields fell 6 basis points to 2.39 percent with Spanish yields down by a similar amount to an all-time low 2.59 percent while Italian equivalents were 4 bps lower at 2.71 percent.
"Clearly Ireland's ratings upgrade adds to the increasingly better news for the periphery in general, but ratings agencies tend to lag what the market is doing," said Orlando Green, a strategist at Credit Agricole.
"But broadly this is certainly about the market looking at the ECB and what they have done and what they will do in the future so investors are grabbing yields while they can."
Last week's easing measures by the ECB have given fresh impetus to a two-year euro zone debt rally that has driven borrowing costs in countries that were at the forefront of the sovereign debt crisis to record lows.
The ECB cut all its main rates, and ECB President Mario Draghi also outlined a new long-term loan programme (TLTRO) for banks to promote lending to small and mid-sized businesses.
"The market now expects a reversal of the shrinkage of the ECB balance sheet, rates to stay lower for longer and there's also the possibility of further action and that's fuelling the rally," a trader said.
At the euro zone's core, German Bunds further outperformed U.S. and UK counterparts, driving the 10-year yield gaps to 2005 and 2010 levels respectively. The two-year T-note yield premium remained close to its highest in seven years around 36 bps, with the ECB expected to keep its ultra-easy policy for longer than initially thought.
Some analysts said banks were likely to use the four-year TLTRO loans to buy shorter-dated peripheral euro zone bonds and repay the money two years later, as there was nothing yet in the programme's conditions to dissuade them from such trades.
"As the dust settles and market players get a handle on the generous terms and conditions of the new facility, a re-run of the LTRO carry trade emerges as the most plausible scenario .... The flamboyant 'liquidity-on' sentiment should extend this week," Commerzbank strategists said in a note.
(Editing by John Stonestreet)