UPDATE 3-Euro zone bond yields fall as weak PMI fans growth fears

Borrowing costs in the euro area fell on Friday as weak data from the euro zone and China fanned worries about global growth, a day after the ECB trimmed growth forecasts and said downside economic risks were becoming more prominent.

Euro zone businesses are ending 2018 in a gloomy mood, expanding their operations at the slowest pace in over four years as new order growth all but dried up, hurt by trade tensions and violent protests in France, a survey showed on Friday.

IHS Markit's Flash Composite Purchasing Managers' Index slumped to 51.3, its weakest since November 2014, from a final November reading of 52.7.

That followed Thursday's decision by the European Central Bank to confirm an end to its massive asset-buying scheme but maintain protracted stimulus for an economy struggling with an unexpected slowdown.

"The growth concerns are back - the French PMIs were affected by the demonstrations, but all across the euro zone the PMIs were weaker than expected," said Alexander Aldinger, rates strategist at Bayerische Landesbank.

"The market's reading is that the ECB will not be able to hike rates next year if the outlook deteriorates further - especially with China/U.S. trade tensions and Brexit worries in the background."

Germany's 10-year Bund yield was down 3 basis points at 0.25 percent - keeping recent six-month lows in sight. Most other 10-year bond yields in the bloc were down a similar amount .

Investors are increasingly sceptical about the potential for an ECB rate hike in 2019, money market futures suggested.

The difference between the overnight bank-to-bank interest rate for the euro zone (Eonia) and forward Eonia rates dated for the ECB's December 2019 meeting was at 6 basis points, down around 7.5 bps on Thursday.

That indicates investors are pricing in roughly a 60 percent chance of a 10 basis point rise in the ECB's deposit rate - the minimum it is likely to increase - for next year. The rate is currently at minus 0.4 percent.

Both the German and Spanish central banks meanwhile cut their growth forecasts.

CHINA PAIN

China's November retail sales grew at the weakest pace since 2003 and industrial output rose by the least in nearly three years as domestic demand softened further, exacerbating concerns about the global growth outlook heading into the new year.

European stocks tumbled, with renewed concern about Brexit adding to the risk-off mood in world markets.

"The euro area economy continues to lose momentum, and downside risks are becoming stronger, even if the ECB is not ready to admit that," said Nordea chief analyst Jan von Gerich.

Portuguese and Irish bond markets - seen as beneficiaries of the ECB's plans for reinvesting cash from maturing bonds - continued their outperformance.

ECB President Mario Draghi said on Thursday the bank would not restrict itself to reinvesting in the countries where maturing bonds originated.

Portugal's 10-year bond yield hit a seven-month low at 1.66 percent and was set for its biggest weekly drop since June. Irish 10-year bond yields fell 2 bps to 0.96 percent.

(Reporting by Dhara Ranasinghe Editing by Richard Balmforth and John Stonestreet)

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