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UPDATE 2-Euro zone bond yields set for one of biggest weekly drops this year

Dhara Ranasinghe and Yoruk Bahceli

* Bond yields down up after big selloff on Thursday

* Comments from ECB officials temper stimulus expectations

* China's central bank cuts bank reserve ratio requirements

* Euro zone periphery govt bond yields (Adds fresh quote, Chinese central bank move; updates prices)

LONDON, Sept 6 (Reuters) - Euro zone bond yields inched down on Friday after their worst one-day selloff in more than a year, as easing global risks, caution ahead of a key ECB meeting and stronger U.S. data all curbed demand for fixed income.

Data showing Germany industrial output unexpectedly fell in July served as a reminder that economic conditions in the euro zone remain weak and central bank easing is on its way.

In the latest action by world central banks to shore up growth, China's central bank said on Friday it was cutting the amount of cash that banks must hold as reserves, for the third time this year.

But after falling for months, yields in major bond markets have shot up this week. News that the United States and China will resume trade talks, the formation of a new government in Italy and easing concern about a no-deal Brexit all hurt demand for safe-haven assets.

Comments from European Central Bank officials, meanwhile, have lowered expectations for aggressive easing at next week's policy meeting, steepening bond yield curves.

Germany's 10-year bond yield fell 1.5 bps to -0.61% after jumping 8.5 basis points on Thursday in its biggest one-day rise since June 2018. It is up 10 bps this week - set for one of its biggest weekly jumps of the year.

"Yesterday's trigger was principally due to the positive noises on the trade war, the better U.S. data and signs a no-deal Brexit is becoming a more remote possibility," said Chris Scicluna, head of economic research at Daiwa Capital Markets.

"The probably co-ordinated comments from hawkish members of the ECB Governing Council also suggest QE (quantitative easing)next week is not a done deal."

Many ECB policy-makers favour resuming purchases of bonds, but opposition from some northern European countries is complicating this issue, according to a Reuters report this week after hawkish comments by ECB policy-makers last week.

Some analysts say policy-makers can be expected to play down market expectations. Others note that market pricing suggests many investors are positioned for rate cuts and a new round of QE.

"If the ECB under-delivers next week, they're not going to be able to have an impact on inflation expectations and with other central banks easing, they will have to introduce 1/8quantitative easing 3/8 at some point, according to their mandate," said Mizuho rates strategist Peter McCallum.

"There might be a slight repricing 1/8this week 3/8 but the longer-term asymmetry is towards lower rates."

Focus turned to August U.S. non-farm payroll data due later in the day. A speech from U.S. Federal Reserve Chairman Jerome Powell will follow later on. It will be closely watched before the central bank's meeting in less than two weeks.

(Reporting by Dhara Ranasinghe and Yoruk Bahceli; editing by Larry King )