* Euro zone bond yields fall
* German PMI rises, euro zone weak but shows positive signs
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices, adds quote and details on Greece)
By Dhara Ranasinghe and Yoruk Bahceli
LONDON, Jan 24 (Reuters) - Euro zone bond yields held at multi-week lows on Friday, brushing aside positive business activity data as additional cases of coronavirus sparked concern.
Analysts said the lack of a meaningful rise in yields following the data reflected a reluctance among investors to let go of fixed income in a still uncertain global environment.
The death toll from the new coronavirus rose to 26 on Friday while a new, second case was identified in the United States.
“Investors, traders don’t want to be short in Bunds when they walk in on Monday morning, then probably discovering that maybe something worse has happened over the weekend,” said Commerzbank rates strategist Rainer Guntermann.”
IHS Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services that account for more than two-thirds of Germany’s economy, rose to 51.1 in January, the highest reading in five months.
But Germany’s 10-year bond yield was down 2 basis points in late trade at -0.33%, holding at six-weeks lows hit on Thursday after the January ECB meeting.
“The German PMI number supports the notion that the economy is stabilising but there is a backdrop of uncertainty on coronavirus, global trade,” said Richard McGuire, head of rates strategy at Rabobank.
“This makes it hard to take a long-term view and explains why on a positive day in stocks you don’t get a big underperformance in bonds.”
According to an European Central Bank survey of economists published on Friday, the ECB will still be missing its inflation target of just under 2% in 2022.
The ECB on Thursday launched a broad review of its policy that could lead to redefinition of the inflation goal.
Finnish central bank chief Olli Rehn said on Friday the ECB should consider adopting a flexible and symmetrical inflation target.
Italian bonds outperformed, with 10-year bond yields falling to 1.23%, their lowest levels since early November.
They are down around 16 bps this week and set for the biggest weekly decline in six weeks as investors brush aside near-term political risks.
In a regional election this weekend in Emilia Romagna, the right-wing League threatens to end 75 uninterrupted years of rule by the Democratic Party (PD), which is part of Italy’s coalition government.
A strong showing by the League, led by Matteo Salvini, would underscore the frailty of the coalition, which was undermined this week when Luigi Di Maio, leader of the co-ruling 5-Star Movement, stepped down.
But regional elections are not expected to bring about a collapse of the national government since the two ruling parties are unlikely to want to face fresh elections, analysts said.
“A win for Lega would likely be short-term bearish for BTPs, but without a national election that could propel Salvini to the premiership, it’s not clear that the bearish move could be sustained on such a result alone,” said Deutsche Bank strategist Jim Reid.
Fitch will review its BB- rating on Greece later on Friday.
The review comes as the sovereign is expected to launch a longer-dated bond sale in the coming weeks.
Reporting by Dhara Ranasinghe and Yoruk Bahceli Editing by Mark Heinrich and Andrew Heavens