Wires

UPDATE 2-Euro zone yields rise as investors see virus containment

Tommy Wilkes and Yoruk Bahceli

* Yields rise on coronavirus cure hopes

* Analysts say risk appetite returning but some caution

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Adds U.S. data, analyst quote)

LONDON, Feb 5 (Reuters) - Euro zone government bond yields rose on Wednesday as investors looked past the rising death toll from the coronavirus in China on hopes that a cure may be found for the disease.

Global stock markets have rallied in the past two days after Chinese authorities pumped in billions of dollars to cushion the blow from the virus outbreak and media reports that scientists had developed a drug to fight the virus, although the World Health Organization has played the news down.

China and other countries have imposed travel restrictions to try to contain a new virus that emerged in the central Chinese city of Wuhan late last year, slamming the brakes on manufacturing and tourism in the world's second-largest economy.

But the slowdown is expected to be temporary and Chinese policy steps are hoped to contain the fallout, giving reasons to remain optimistic about the growth outlook.

The outbreak is adding to global economic uncertainty but its impact may be short term and temporary, limiting the need for policy action, European Central Bank executives said on Wednesday.

The 10-year German government bond yield rose as much as 4 basis points to -0.36%, its highest level since Jan. 29.

"These reports that there may be a coronavirus cure at the start of the session; obviously that was the main cause for the sell-off," said Mizuho rates strategist Peter McCallum.

"Just because of positioning we thought it was harder for risk-off to continue...It's been quite a long rally in rates markets so naturally the market is getting more and more net-long in terms of positioning."

Germany's 10-year yield fell 26 basis points in January, while it is up 7 bps so far in February.

Safe-haven bonds were also under pressure from better-than-expected U.S. employment data and a pick-up in U.S. services sector activity in January.

Mizuho analysts said that while plenty of investors remained ready to buy less risky assets, they did not see the German 10-year bond yield falling below the recent level of -0.44% "if pandemic fears do not grow and if more positive data emerges."

Final euro zone purchasing managers index survey data came in slightly better than expected for January, adding to the positive mood.

Euro zone retail sales numbers for December, however, were worse than expected.

Lower-rated Southern European debt outperformed, with yields not rising as much as they did in countries with a higher-credit rating. The Italian 10-year yield was up 2 basis points to 0.97% .

(Editing by Toby Chopra and Angus MacSwan)