UPDATE 1-Euro zone yields up as PMIs signal growth, but factory concerns linger

Euro zone government bond yields rose after surveys showed business activity was surprisingly firm in February, particularly in France, though poor manufacturing readings across the bloc kept a lid on the move. French business activity rose more than expected as manufacturing growth helped offset slack in services that has dogged firms in the wake of anti-government protests, the French purchasing managers' index (PMI) showed.

This initially pushed euro zone yields 2-3 basis points higher across the board, but those rises were tempered once corresponding surveys for Germany and the euro zone as a whole came out. The German PMI number was more of a mixed picture, with the services sector accelerating to a five-month high, compensating for the second successive monthly contraction in manufacturing.

The survey for the bloc cemented concerns around manufacturing, with factory output unexpectedly declining amid trade tensions and auto sector struggles, though the composite figure was better than expected. "Evidence of a decent February for the euro zone is mounting... In an economy close to stagnation, this is a welcome sign and suggests continued, albeit slow, growth in the first quarter," said Bert Colijn, an economist at ING.

Germany manufacturing sector continued to be a cause for concern, however, he added. By 0915 GMT, yields were slightly up on the day.

Germany's 10-year yield was 1 basis point higher at 0.11 percent, having hit a one-week high of 0.124 percent in early trade just after the French PMI survey. Economic growth in Europe has slowed considerably in recent months, with Germany narrowly escaping a recession at the end of last year. With concern mounting over potential U.S. tariffs on cars, it could be hit even harder.

Germany recorded the world's largest current account surplus for the third year running in 2018. The country's strong exports vex U.S. President Donald Trump, highlighting the risk of U.S. tariffs on German cars. Also capping the broad rise in yields, the U.S. Federal Reserve on Wednesday signalled it would soon lay out a plan to slow the runoff of its balance sheet.

Earlier, sources suggested to Reuters that United States and China had sketched the outlines of a deal to end their trade dispute. European Central Bank chief economist Peter Praet is due to speak later on Thursday. Comments he made last week on potential cheap loans to euro zone banks boosted demand for southern European bonds, Italian debt in particular.

Italian yields edged lower on Thursday, bucking the wider trend, with 10-year yields dropping 2 bps to 2.84 percent. (Reporting by Abhinav Ramnarayan, editing by Larry King and John Stonestreet)