Really, really common, and your instinct is spot-on with regards to how to handle it. To make a big deal out of it will send the wrong message, that her body is shameful, or that touching it is "bad". It is appropriate to give her a gentle reminder that "That is something we do in private, sweetie." If she is doing it in her bed to self-soothe, there isn't really much you can do, or should do.
I'd just find a key phrase that you feel comfortable with and when she does it in public, use that phrase...she may not understand the word "private", but maybe say "nighttime". Just be sure you are gentle and breezy about it in your tone.
HTH!