March 6 (Reuters) - The worst selloff in euro zone

government bonds in over 25 years entered a second day on

Thursday, as investors braced for a sharp increase in debt

supply due as Germany prepared to dramatically incraese its

fiscal spending.

Germany is in for a massive ramp-up in spending, with a

special 500-billion euro fund for infrastructure, and plans to

exclude defence investment from its debt rules.

Germany's 10-year bond yield, the euro area's

benchmark, was up 7 basis points (bps) at 2.85%. It jumped by 30

bps the day before, in its biggest daily rise since May 1997.

Money markets showed traders also scaled back their bets on

European Central Bank monetary easing, just hours ahead of the

central bank's policy decision, pricing in a deposit rate of

2.12% by December from 1.92% late Tuesday.