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UPDATE 2-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 (Adds quote, graph, updates prices)

LONDON, Nov 10 (Reuters) - High grade 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, comments from ratesetters and an expected supply glut as reasons for the move.

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

"On the Bund futures, you had a very large open interest position, extremely large," BNP Paribas Asset Management's sovereign chief Patrick Barbe told Reuters, referring to the high volumes which usually suggests a big move in the market.

He said he believes a key investment manager decided to switch its exposure from Bunds to U.S. Treasuries because of the widening gap between the two.

The spread between German and U.S. 10-year borrowing costs widened out to 200 basis points on Wednesday but tightened sharply to 195 bps on Thursday, possibly reflecting this switch.

Barbe also believes comments from ECB members earlier this week has changed the market's momentum.

"The rally changed suddenly two days ago when some ECB members spoke about their own view on the way to manage the monetary policy after September," he said.

He said the comments show that ECB monetary policy is still an open discussion.

ECB board member Sabine Lautenschlaeger said this week the ECB should have set a clear end date for its asset purchase program while governing council member Philip Lane said the bank can tighten monetary policy more decisively once inflation is on a clear path towards the target.

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 settled at 0.39 percent, 6 bps higher than Thursday's open.

Most other euro zone government bond yields were also higher on the day, though the recent spike in yields seemed to generate a renewed bid for higher-yielding Southern European bonds, which bucked the trend and were 1-3 bps lower.

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.

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 Toby Chopra)