(Updates at 1045 GMT)

By Harry Robertson and Amanda Cooper

LONDON, Sept 12 (Reuters) - Euro zone bond yields rose

on Thursday ahead of a widely anticipated interest rate cut from

the European Central Bank, bouncing back after falling sharply

in recent days.

Germany's 10-year bond yield, the benchmark for

the euro zone, was up 3 basis points at 2.114%, having touched

2.086% on Wednesday, its lowest since the market turmoil of

early August. Yields move inversely to prices.

The two-year German yield was up 6 bps at 2.2%,

after falling to its lowest since March 2023 on Wednesday at

2.125%. Shorter-dated yields are highly sensitive to

expectations about central bank interest rates.

Markets fully expect the ECB to cut rates by 25 bps to 3.5%

at 1215 GMT. Traders are pricing in the possibility of two more

rate cuts this year, although that could change depending on

what ECB President Christine Lagarde communicates about the

growth and inflation outlook at the post-decision press

conference.

"A 25-bp cut is a consensus and should not be a surprise,"

said Mohit Kumar, chief economist for Europe at Jefferies. "We

expect Lagarde to adopt a neutral tone, justifying the rate cut

given recent weakness in the data."

"Our view remains that the next cut after today is likely to

be in December. The staff forecasts are likely to show that core

inflation will still remain sticky, justifying a gradual

approach from the ECB."

Bond yields have dropped over the last two weeks as economic

data has made investors increasingly confident the all-important

U.S. Federal Reserve will cut rates deeply this year, starting

later this month.

A sharp drop in oil prices has reassured markets that

inflation is unlikely to rear back up and that central banks

such as the ECB can ease monetary policy further. Oil prices

jumped on Thursday, however, spurred by concern over Hurricane

Francine's impact on U.S. output.

Italy's 10-year yield, which on Wednesday fell

to its lowest since August 2022, was last up 1 bp at 3.546%,

leaving the premium over German bonds at 141 bps.

The Financial Times reported on Thursday that European Union

officials are examining ways to extend as much as of 350 billion

euros ($385.49 billion) of COVID-19 era bonds in order to

prevent the bloc's common budget being overwhelmed by repayment

costs.