(Updates at 0920 GMT)

By Samuel Indyk

LONDON, April 23 (Reuters) - Eurozone government bond

yields were steady on Tuesday as traders digested mixed

Purchasing Managers' Index data from the euro area, which did

not offer any new hints on how fast the European Central Bank

could lower borrowing costs.

Overall business activity in the euro zone expanded at its

fastest pace in nearly a year, HCOB's preliminary composite PMI

survey showed, propelled by a recovery in the bloc's dominant

services sector.

But manufacturing activity contracted, with the PMI falling

to 45.6 from 46.1, holding below the 50 threshold that indicates

expansion for the 22nd consecutive month.

Germany's 10-year bond yield, the benchmark for

the euro zone bloc, was last little changed at 2.49%.

ECB officials are sticking to plans to begin lowering

interest rates from their record high in June, although their

intentions post the June meeting are less certain.

"The ECB has been clear with its near-announcement of the

first cut in June, with the pace and extent of following cuts

continuing to be very much data-dependent," said Philippe

Noyard, global head of fixed income at Candriam.

Money markets were pricing around 76 basis points of

monetary easing from the ECB this year, or

the equivalent of around three quarter-point cuts.

On Monday, markets had been pricing around 72 points of

easing in 2024.

ECB Vice President Luis de Guindos said the central bank

needs to be cautious about moves after June and take into

account signals from the U.S. Federal Reserve.

Markets were pricing only around 40 basis points of easing

from the Fed this year, having trimmed expectations for rate

cuts given robust economic growth and inflation that has been

stickier than the euro area.

"We think the ECB can be a bit more front-loaded than the

Fed in cutting rates but they won't want to diverge too much,"

said Amanda Sundström, strategist at SEB.

"Our main case is that the Fed will do something but the

euro area is looking less strong than the U.S. and inflation is

falling faster," Sundström added.

The spread between U.S. 10-year Treasuries and German bunds

, a gauge of the monetary policy divergence between

the U.S. and the euro zone, was at 213 bps, just off its widest

level since 2019 at 220.9 bps reached recently.

Sundström said that the spread could widen further in the

near term as the ECB is expected to move before the Fed, but in

the longer run does not think the divergence will be as large as

the Fed embarks on its own easing cycle.

Italy's 10-year yield was lower by 1 bp at

3.81%, and the gap between Italian and German bunds

narrowed by 1 bp to 130 bps.

Germany's two-year bond yield, which is sensitive

to changes in ECB rate expectations, was flat at 2.97%.