* French PMI highest in 1-1/2 years, German PMI eases
* ECB's Liikanen dovish comments supports market
By Emelia Sithole-Matarise
LONDON, March 24 Euro zone government bond
prices were mostly lower on Monday after data showed a surprise
return to growth in French business activity and suggested the
bloc's economic recovery is more broadly based than previously
A survey showed business activity in France, the
currency bloc's second-biggest economy, grew in March at the
fastest pace in more than 2-1/2 years, defying forecasts for a
Similar purchasing managers index (PMI) data for Germany
showed its private sector slowed in March, but the overall
composite index showed broader growth in the euro zone.
"The market reacted promptly to the upside surprise in
French PMIs but Germany is little bit weaker than expected so we
are seeing a bit of a rebound and a limited setback in the
market," said Patrick Jacq, a strategist at BNP Paribas.
German 10-year yields were 1.2 basis points up
up at 1.65 percent, while French, Dutch and Austrian yields were
Comments by European Central Bank Governing Council member
Erkki Liikanen that the bank would keep interest rates low well
into the euro zone recovery tempered the rise in yields.
Liikanen cited high unemployment and the fact that many
factories are running well below capacity. [ID:nL6N0MI2TN}
German yields have pulled back from two-week highs hit last
week after U.S. Federal Reserve chair Janet Yellen surprised
markets by suggesting an interest rate hike could come earlier
than many in the market were expecting.
Although euro zone money markets have all but priced out
expectations of an ECB interest rate cut in coming months, the
bank is seen keeping monetary policy ultra-easy with inflation
seen remaining at ultra-low levels.
"We still think European outperformance on a cross market
basis should continue given the diverging central bank outlooks,
with the Fed on one side and the ECB on the other remaining
accommodative," a trader said.
(Editing by Catherine Evans)