(Updates throughout, adds comments)

By Joice Alves and Samuel Indyk

LONDON, Nov 21 (Reuters) -

Euro zone bond yields retreated from six-week highs on

Friday as sentiment reversed and investors sold off risk assets

and bought back bonds.

Following a rally on the back of this week's upbeat results

from AI bellwether Nvidia, stocks in Europe recorded steep

losses on Friday as concerns over stretched tech valuations and

a more hawkish Fed contributed to a risk-averse mood.

Among euro-denominated assets, investors often turn to

German bonds when global risk sentiment sours, given the

country's very low default risk and high bond market liquidity.

Bond yields move inversely with prices.

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

the euro zone, was down 3 basis points (bps) at 2.69%, having

hit its highest in six weeks on Thursday at 2.741%.

Italy's 10-year government bond yield fell 1.6

bps to 3.45%, after also hitting its highest in six weeks on

Thursday.

"The results from Nvidia did nothing to change the facts

about AI valuations. The mood boost it delivered

proved temporary," Neil Wilson, UK Investor Strategist at Saxo

Markets, said.

On the data front, euro zone business activity grew steadily

this month as services expanded at the quickest pace in 1-1/2

years, while weak demand sent manufacturing back into

contraction territory, a private survey showed.

The 20-nation bloc has shown economic resilience despite

high global uncertainty since the start of the year, confirming

expectations the European Central Bank will most likely hold

interest rates next year.

In the U.S., brokerages are split over whether the Fed will

cut interest rates in December or hold them, following

conflicting signals on job growth and unemployment earlier in

the week.

Concerns about financial market stability, including the

potential for a sharp drop in asset prices, are emerging as a

fresh theme for

Fed officials

as they debate when to cut interest rates further.

Shorter-end yields, which are more sensitive to changes in

interest rate policy, were also falling on Friday.

Germany's two-year yield was down 2.8 bps at

1.99%, having briefly touched a two-week low.