* Bunds rise before launch of new 10-year bond * Periphery calm, waiting for ECB meeting * Netherlands to sell dollar bond By Kirsten Donovan LONDON, Sept 5 (Reuters) - German government bonds rose on Wednesday after data showed the euro zone was probably in recession and before a 10-year auction which is expected to meet decent demand with investors cautious over ECB bond-buying plans. Despite expectations the European Central Bank will flesh out some details of its proposed bond buying programme at its policy meeting on Thursday, investors have been wary given major uncertainties over the plan. This was expected to support demand for the low-risk German bonds, just as it did for sales this week of Belgian and Austrian debt. "The market seems to be expecting a massive solution; the swing in sentiment does seem to have gone too far that way." German Bund futures were 30 ticks higher at 143.80, with 10-year yields 2.5 basis points lower at 1.38 percent, having retraced around half of the rise seen during August. The contract pushed higher after Purchasing Managers' Index data showed the economic rot that began in smaller peripheral euro zone countries was taking hold in Germany, the region's largest and strongest economy, although traders said this was not really a surprise. ECB President Mario Draghi told European lawmakers on Monday that purchases of short-term sovereign bonds to help debt-burdened countries like Spain and Italy would not breach European Union rules, according to a recording obtained by Reuters. That buoyed peripheral bonds issued by Spain and Italy, pushing shorter-dated yields sharply lower and the difference between two- and 10-year Spanish bond yields to a new high. Both Spanish and Italian yields were broadly unchanged in early trading on Thursday. Nordea analyst Niels From said the ECB would probably be limited in how much it could say before the German constitutional court votes to ratify the permanent ESM euro zone rescue fund next week. "If the market is waiting for the whole package from the ECB tomorrow, then they're probably going to be disappointed," From said. "But we don't expect a massive sell-off in the periphery, although there will be some disappointment pressure on spreads to widen, or a massive rise in the Bund future." NEW BUND Germany will sell 5 billion euros of its new September 2022 bond, which carries a record-low coupon of 1.5 percent. Analysts said the bond was trading at fair value, or even slightly cheaply, in the grey market, in which new bonds trade before issue but some were cautious about how the sale would go. "This week's heavy long-end supply from core issuers as well as the looming ECB meeting could weigh on the auction," Commerzbank strategists said in a note. "Against this backdrop, the take-down of the new Bund will thus largely be a function of the prevailing risk-sentiment in the run-up to the auction." The launch of Germany's last 10-year benchmark in April failed to attract enough bids to cover the amount on offer - the only time that has happened this year. The Netherlands will also sell around $2 billion of three-year dollar denominated bonds, coming to market at short notice to take advantage of the good demand for core bonds .

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