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LONDON, Aug 25 (Reuters) - Euro zone bond yields fell sharply on Monday after European Central Bank President Mario Draghi boosted speculation that the monetary authority will eventually loosen its policy by printing money.
In stronger language than he has used in the past, Draghi said on Friday at an annual meeting of central bankers in Jackson Hole, Wyoming, that the ECB was prepared to respond with all its "available" tools should inflation drop further.
This increased speculation the ECB could embark on a large-scale asset-purchase scheme known as quantitative easing (QE).
The ECB cut all its interest rates in June and flagged measures to pump up to 1 trillion euros into the sluggish euro zone economy by offering cheap long-term loans to banks.
The ECB has been struggling for months to lift inflation out of what it calls a "danger zone" of sub-1 percent. Euro zone consumer prices grew 0.4 percent in July and are expected to post 0.3 percent growth in August on Friday, a far cry from the ECB's target of just below 2 percent.
Germany's Ifo business sentiment at 0800 GMT was expected to add to the picture of a lacklustre euro zone economy.
German 10-year yields were down 3 basis points at 0.958 percent, close to their record lows of 0.952 percent. German Bund futures were up 43 ticks at 150.70.
"(Draghi's) comments are likely to keep alive the hopes that the ECB adds more stimulus measures to push the inflation expectations back upwards," said Suvi Kosonen, an analyst at Nordea.
Trading was light due to a bank holiday in London.
Spanish and Italian 10-year yields fell 8 bps to 2.31 percent and 2.51 percent, respectively, while Portuguese yields fell 14 bps to 3.12 percent. (Reporting by Marius Zaharia, editing by Nigel Stephenson)