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UPDATE 1-Euro zone bond yields nudge up after PMI data, rate cut bets still on

Dhara Ranasinghe

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* Euro zone business activity picks up, but still weak

* Markets braced for rate cuts globally

* Euro zone bond yields set for sharp weekly declines

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Writes through after PMI data)

LONDON, June 21 (Reuters) - Government bond yields across the euro area edged up on Friday after news that business activity in the bloc had picked up in June, but the data was not strong enough to shift market expectations that a rate cut is likely soon.

IHS Markit's Flash Composite Purchasing Managers' Index (PMI), which is considered a good guide to economic health, only nudged up to 52.1 this month from a final May reading of 51.8.

French business activity strengthened more than expected in June to the fastest pace in seven months, sparking a rise in bond yields across the bloc initially.

Activity in Germany's services and manufacturing sector also edged higher in June. But the overall tone of the euro zone PMI data remained weak and reinforced expectations for further monetary easing in the months ahead.

Across the single-currency bloc, 10-year euro zone bond yields were 2-3 basis points higher on the day but off session highs hit after the French PMI .

"We can take satisfaction from the fact that the PMIs haven't deteriorated significantly," said Chris Scicluna, head of economic research at Daiwa Capital Markets.

"But we need to see a meaningful improvement in the data to see the ECB sitting on its hands in the autumn. At the moment, expect a September rate cut."

Bond yields, which fall when prices rise, slid again this week after European Central Bank President Mario Draghi said on Tuesday that more monetary easing was on its way unless inflation picked up.

Euro zone money markets are almost fully pricing in a 10-basis-point rate cut at the ECB's September meeting.

"What we've seen this week is that central banks are ready to act, so I would expect markets to react less to today's PMI as easing is coming," said Pooja Kumra, European rates strategist at TD Securities in London.

Germany's benchmark 10-year Bund yield was 3 bps higher at minus 0.29%, not far off a record low of around minus 0.33% on Tuesday after Draghi's speech in Sintra, Portugal.

Spanish 10-year bond yields were down 10 bps this week, declining for the ninth straight week.

Italy's 10-year bond yield, trading at 2.14%, was down some 18 bps this week, its third straight week of declines. (Reporting by Dhara Ranasinghe, editing by Larry King and Kevin Liffey)