UPDATE 1-Bund future sell-off weighs on euro zone bond market

* Germany's 10-year yield hits 0.40 pct, highest in two weeks

* Move triggered by sharp sell off in Bund futures, sources say

* Euro zone bond yields higher 1-2 bps across the board

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Writes through)

LONDON, Nov 10 (Reuters) - Euro zone government bonds sold off for a second consecutive day on Friday with analysts and traders citing a sharp sell off in Bund futures, a shining euro zone economy and an expected supply glut as reasons for the move.

The sell-off was first triggered by some aggressive selling of Bund futures by one or two large investors on Thursday late morning, two trading sources told Reuters, but has continued into its second day with yields higher across the bloc.

German bond futures, a derivative often used by speculative investors to bet on bond price movements, had hit a high of 163.63 on Wednesday before a two-hour period of intense selling on Thursday morning pushed that back down to 162.50.

It was even lower at 162.37 on Friday.

"Bonds were just too expensive and we needed a correction," said DZ Bank analyst Rene Albrecht.

RBC researchers also said in a note that the broad correction in markets was driven by Thursday's Bund sell off, adding that it was driven out of Europe.

"We can't pin-point the selling pressure to a data release or central bank statement and anecdotal reports suggest that larger selling orders were placed in future and cash markets," they said in a note.

Two sources told Reuters on Thursday that a few large, institutional investors had triggered the sell off.

The end result is that the yield on Germany's 10-year government bond, the benchmark for the region, hit 0.40 percent for the first time in two weeks on Friday, and is now 7 bps higher than Thursday's open.

Most other euro zone government bond yields were also higher 1-2 bps on the day.

This spike in yields means the market has gone a long way towards reversing the rally that followed the Oct. 26 European Central Bank meeting.

In that meeting, rate-setters extended the central bank's bond-buying scheme to at least September 2018, albeit at a slower pace. The news saw yields across the bloc compress to their lowest level in months.

Italian government bonds were the biggest beneficiary, the 10-year bond yield spread over Germany moving to its tightest level in over a year at 137 basis points earlier this week.

But now that spread is back at 144 bps.

In addition, several euro zone countries are expected to sell bonds next week, with ING estimating 25-30 billion euros of new supply from Germany, the Netherlands, France, Spain and Italy.

Yields often rise ahead of government bond auctions as investors make room to participate in the sales.

Events in the United States continue to have an effect on markets as uncertainty about tax reforms pulled down shares in Asia and Europe.

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 Saikat Chatterjee and Peter Graff)