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UPDATE 1-Euro zone bonds sell off as investors get ready for ECB

Yoruk Bahceli

* Long-dated bonds sell off, reversing Friday's yield falls

* Investors adjust expectations ahead of Thursday ECB meeting

* Positive German and euro zone data adds to picture

* Euro zone periphery govt bond yields (Recasts, adds ECB expectations, analyst comment, China data)

LONDON, Sept 9 (Reuters) - Euro zone bond markets sold off on Monday ahead of a big European Central Bank policy meeting this week that is expected to conclude with rate cuts and other stimulus measures to support the region's sluggish economy.

Over the past week, investors have tempered expectations for an aggressive easing package - pushing bond yields away from recent record lows.

The position adjustment in bond markets continued on Monday amid slightly positive signs from economy data, with most longer-dated bond up 5 to 8 basis points .

Germany's 30-year government bond was up 6 bps to -0.05%, edging closer to positive territory after it fell to a negative yield for the first time in early August. The sovereign's 10-year benchmark yield was up 4 bps to -0.60%.

Euro zone government bond yields are building on big rises last week, as investors lowered their expectations for aggressive easing from the ECB after hawkish comments by the bank's officials, steepening bond yield curves.

"If there are net new purchases, the ECB would spread these out over the curve, possibly buying more duration. This is why the ultra-long end is more affected (by lowered quantitative easing expectations)," said Commerzbank rates strategist Rainer Guntermann.

Data releases on Monday supported the rise in yields. German exports unexpectedly rose in July, suggesting the euro zone's biggest economy may be withstanding some of the impact of tariff disputes and Brexit uncertainty.

A euro zone business sentiment survey also indicated that investor morale improved slightly in September.

Meanwhile, Chinese export data over the weekend showed an unexpected fall in August as shipments to the United States slowed sharply.

The data "could be taking some steam out of the trade talks, which would be a positive for risk sentiment," Commerzbank's Guntermann said.


Overall trade was expected to remain subdued as investors wait to see just what stimulus the ECB delivers this Thursday.

"With the European Central Bank on tableau for this week I don't expect any significant market movements ahead of the meeting," said Rene Albrecht, rates strategist at DZ Bank.

At the very least, money markets show investors expect a 10 basis point cut in the deposit rate to -0.50% in what would be the first cut since 2016.

Some investors are betting on a bigger 20 bps cut; nearly a quarter of economists polled by Reuters anticipate this too.

Nearly 90% of economists polled by Reuters also expect the ECB to announce a return to quantitative easing, starting with monthly asset purchases of 30 billion euros from October.

The risk-on sentiment that has gripped the bond market since last week has also been supported by a perceived fall in the likelihood of a no-deal Brexit at the end of October and news that the United States and China would resume trade talks, which curbed demand for safe-haven assets. (Reporting by Yoruk Bahceli Editing by Hugh Lawson/Mark Heinrich)