UPDATE 2-Virgin Media lines up high yield deal

* High-yield issuer to test investor appetite

* Dollar bond and possible eurobond eyed

* Could mark third European high-yield bond sale this month (Adds expected yields)

By Natalie Harrison

LONDON, May 28 (Reuters) - British cable operator Virgin Media (VMED.O: Quote, Profile, Research) plans to sell a two-part bond, with an expected size of $650 million, to term out its financing and to take advantage of the reopening of the European high yield market.

The bond sale will consist of a seven-year dollar-denominated senior issue, callable after four years, and a possible eurobond, IFR reported on Thursday, and proceeds will be used to pay down loans due in 2010 to 2012.

Both the dollar and euro tranches are expected to yield 10.25 to 10.5 percent, according to IFR, a Thomson Reuters service.

European high-yield bond issuance has seen tentative signs of revival in the past couple of weeks, with deals coming from Nordic papermaker Stora Enso (STERV.HE: Quote, Profile, Research) and Dutch cable operator UPC.

"It's certainly an interesting deal and Virgin Media is one of the better names out there," said Patrick McCullagh, head of European and UK credit research at Schroders.