(Updates with Germany data, details)

By Yadarisa Shabong

March 25 (Reuters) - Euro zone bond yields rose on

Tuesday as traders piled into risky assets on signs of

flexibility in the next round of U.S. tariffs and

stronger-than-expected U.S. data, while improved business morale

in Germany also helped.

European bond markets took some cue from U.S. markets

overnight after U.S. President Donald Trump indicated on Monday

that not all of his threatened levies would be imposed on April

2 and that some countries may get a break.

Markets saw that as a sign of flexibility, leading to a

rally in U.S. stock markets on Monday and a selloff in U.S.

bonds. Yields move inversely to prices.

An unexpectedly strong reading for the U.S. services sector

in S&P's PMI index for March, which came in higher than the

consensus and showed a clear expansion in the final month of the

first quarter, has also helped sentiment for risky assets.

The German 10-year bond yield, the benchmark for

the euro zone bloc, rose to a one-week high of 2.819%, up 4.6

basis points.

"The flexibility comments from Trump, they're clearly ...

helping. I think the strong U.S. data from yesterday is probably

bleeding through into our session as well," said Peter

Schaffrik, global macro strategist at RBC Capital Markets.

Meanwhile, German business sentiment rose, as expected, this

month, a survey from the Ifo institute showed on Tuesday, as

companies expect a recovery after two years of contraction in

Europe's largest economy.

The data offered a measure of the business outlook after

Germany passed a landmark bill to massively boost infrastructure

and defence spending, a move seen as a positive for euro zone

growth in the next few years.

Italy's 10-year yield was higher by 3.1 bps at

3.911%, and the gap between the Italian and German 10-year bonds

stood at 109 bps.

The European Union has threatened to impose retaliatory

measures from next month against goods from the United States

after the U.S. put in place duties on steel and aluminium

products from around the world earlier this month.

The U.S. has said it will review its trade relationship with

the European Union.

UBS estimates that a 10% US tariff could lower euro area GDP

growth by 0.1-0.3 percentage points over a year, while a 25%

tariff could lower GDP by 0.3-0.7pp, with a significant degree

of uncertainty depending on EU retaliation, FX adjustments,

confidence effects and other things, Reinout De Bock, head of

European rates strategy at UBS said.

On Tuesday, ECB policymaker Peter Kazimir said he was open

to discussing whether to cut interest rates further or pause at

the bank's next meeting in April.

Markets priced in a ECB depo rate at roughly 2% at the end

of 2025.

Germany's 2-year bond yield, which is sensitive

to ECB policy rates, was 2.7 bps higher at 2.153%.