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UPDATE 2-Bonds rally on ECB's 'lower for longer' signal

* Ratesetters have broadly agreed to extend asset purchases

* Views converge on 9-month extension, sources tell Reuters

* Euro zone govt bond yields drop 2-4 bps across the board

* Euro zone periphery bond yields http://tmsnrt.rs/2ii2Bqr (Adds quote, updates prices)

LONDON, Oct 13 (Reuters) - Euro zone government bond yields dropped on Friday after a Reuters report that European Central Bank (ECB) policymakers had broadly agreed to extend their bond-buying scheme into next year.

Ratesetters are moving towards announcing more asset purchases at lower volumes at their October policy meeting, with views converging on a further nine months, five people with direct knowledge of the discussion told Reuters.

The consensus among analysts and economists has been for the ECB to extend the 2.3-trillion-euro scheme into 2018, but with little clarity on the duration.

Nine months would be at the higher end of expectations.

"Most forecasts were for an extension of between six to nine months but it makes sense to keep the purchases in place for as long as possible to help reduce market volatility and reinforce the rates guidance," said ING strategist Benjamin Schroeder.

Germany's 10-year govt bond yield dropped by more than 3 basis points at one stage to hit its lowest level this month at 0.415 percent.

Most other euro zone bond yields were 2-4 bps lower, according to Tradeweb data.

"A gradual approach to tapering, without a long, pre-committed period through which the purchases are intended to continue allows for a re-evaluation and another recalibration a few months later, depending on the markets' initial reaction," Rabobank strategists said in a note.

Yields were also pushed lower by comments from ECB President Mario Draghi late on Thursday.

The bloc's top monetary policymaker defended a promise to keep interest rates at rock bottom, batting back German calls for a speedy exit from years of easy money.

Retail sales and consumer price data from the United States on Friday could provide further downward pressure on yields, particularly if it points to tepid inflation in the world's largest economy.

A Reuters poll forecast that U.S. inflation for September would hit 0.6 percent over the previous month and 2.3 percent year-on-year.

Austrian government bond yields moved in line with peers, down 3 bps at 0.605 percent, ahead of national elections on Sunday.

France said on Friday it will sell 6-7 billion euros of nominal bonds of various maturities and 1.25-1.75 billion euros of 10- and 15-year inflation-linked bonds via auctions next Thursday.

Spain is also expected to announce bonds they will auction next Thursday, with Mizuho analysts expecting three-year, 10-year and 15-year maturities.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.bi z / c m s / ? p a g e I d = l i v e m a r k e t s (Reporting by Abhinav Ramnarayan, Editing by Sujata Rao/John Stonestreet/Alexander Smith)