Euro zone bond yields edge up, IMF highlights "solid momentum" in economy

* IMF revises up euro zone GDP forecasts

* Mersch: unlikely that easy policy will remain too long

* Bond yields nudge up, periphery outperforms

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

LONDON, July 24 (Reuters) - Euro zone bond yields nudged up on Monday as an upward revision to economic growth forecasts from the International Monetary Fund highlighted a strengthening economy that could encourage the ECB to step back from its ultra-loose monetary policy.

In an updated World Economic Outlook on Monday, the IMF upgraded its 2017 gross domestic product (GDP) growth projection for the euro zone to 1.9 percent, up 0.2 percentage point from April, and pointed to "solid momentum".

It shaved its forecasts for U.S. economic growth and cut its 2017 GDP forecast for Britain.

While subdued inflation means there is no hurry for the ECB to rush into an unwinding of its monetary stimulus scheme, a stronger economic backdrop suggests the need to maintain an ultra-easy monetary policy stance is weakening.

French business activity slowed more than expected in July to a six-month low, though manufacturing sped up, a survey showed on Monday.

ECB board member Yves Mersch said unconventional monetary policy tools used since the global financial crisis were unlikely to remain necessary as the global economy and central banking normalise.

"The revisions from the IMF were very good and that could be a reason for the weakness in euro zone bonds," said DZ Bank rates strategist Sebastian Fellechner.

Most bond yields in the euro area were 1-2 basis points higher, pulling back from lows hit on Friday as the euro hit two-year highs against the dollar and dampened investors' inflation expectations. A strong euro puts downward pressure on the cost of imports into the bloc.

Germany's benchmark 10-year government bond yield was up 1.5 basis points at 0.52 percent, up from a one-week low hit on Friday at around 0.50 percent.

Upcoming bond supply from Belgium was also putting some upward pressure on yields, analysts said. Belgium is scheduled to sell medium-to-long term bonds later on Monday.

But data showing Germany's private sector growth slowed more than expected in July pushed yields down from session highs.

Southern European yields nudged lower, with appetite for the region's riskier markets boosted by positive ratings news on Friday.

S&P revised the ratings outlook for Greece to 'positive' from 'stable', citing an expectation that debt levels will decline. Fitch raised the outlook on Spain's BBB+ rating to 'positive' from 'stable'.

Italian and Portuguese 10-year bond yields dipped to their lowest levels in almost a month at 2.06 percent and 2.90 percent respectively .

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(Reporting by Dhara Ranasinghe; Editing by Kevin Liffey)