UPDATE 1-Euro zone bond yields rise, China data takes edge off recession fears

Euro zone government bond yields rose on Monday as an unexpected bounce in Chinese factory activity data and hopes of an easing in world trade tensions took the shine off safe-haven bond markets after last month's stunning price rally.

Still, given the scale of the shift in how investors view the outlook for growth and inflation, bond yields remained well below levels they traded a month ago, while data from the bloc highlighted that euro zone growth conditions remain weak. Euro zone headline and core inflation slowed in March, flash estimates showed.

Latest Chinese data and news that China would continue to suspend additional tariffs on U.S. vehicles and auto parts after April 1 brought some calm to world markets for now. China's Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) expanded at the strongest pace in eight months in March, rising to 50.8 from 49.9 in February, above the 50-mark dividing expansion from contraction and the highest level since July 2018.

"It's a new month, a new quarter, the Chinese PMI has definitely helped sentiment," said Neil MacKinnon, global macro strategist at VTB Capital. Germany's benchmark 10-year bond yield was last up 2.5 basis points at minus 0.04 percent, off 2-1/2 year lows at minus 0.09 percent last week. Other 10-year bond yields in the bloc rose around two-three bps on the day.

"The focus last week was on central bank guidance and this week it's on the data, which is showing signs of stabilisation," said Commerzbank rates strategist Rainer Guntermann. "For the week, we see Bund yields staying below zero percent but edging higher." A final reading of manufacturing activity data in the euro area confirmed a weak outlook for the sector.

IHS Markit's March final manufacturing PMI declined for an eighth month, coming in at 47.5 from February's 49.3, just below a flash estimate and its lowest reading since April 2013. Britain remains in focus, meanwhile ,with parliament on Monday expected to vote for a second time on different Brexit options. British Prime Minister Theresa May could try bringing her thrice-rejected deal back to a vote in parliament as soon as Tuesday.

(Reporting by Dhara Ranasinghe Editing by Mark Heinrich)