For the Modular Multilevel Converter （MMC） applied in medium and low voltage DC distribution grids, there will be high content of low frequency harmonics in output voltage and severe current distortion due to significant decrease of the module number. Therefore, it is meaningful to design a suitable modulation method for the MMC in the DC distribution grids. This paper proposes a hybrid modulation method of Nearest Level Modulation （NLM） and Pulse Width Modulation （PWM）. The proposed Nearest Level PWM （NL-PWM） method not only reduces the current distortion significantly, but also avoids the complicated voltage balancing control in each module. The NL-PWM method is easy to convert with the NLM method, which allows the MMC to output PWM wave or ladder wave conveniently according to the actual demand. Increasing the number of modules or introducing PWM can suppress the harmonics to the same degree for medium and low voltage MMC. Results of harmonic analysis in this paper provides theoretical basis for modulation design of MMC and a new harmonic index - the total current harmonic distortion for the pure inductor load is proposed to measure the harmonics of the two modulation methods. Finally, combined with a design example of 6kV MMC, the harmonic characteristics and feasibility of the proposed modulation method are verified by simulation.