LONDON, April 4 (Reuters) - Euro zone bond yields moved

lower on Thursday, helped by cooler than expected inflation data

in the currency bloc the day before as well as remarks by the

U.S. central bank chief which helped bring a bit of calm to

global government bond markets.

The yield on Germany's 10-year Bund dropped 3 basis points

to 2.37%, a second day of small declines, after a large increase

at the start of the week.

Thursday data did little to move the dial with

purchasing manager index surveys

showing euro zone business activity expanded last month for

the first time since May 2023 with a stronger than expected

upturn in the bloc's dominant services industry offsetting a

deeper downturn in manufacturing.

There was also PPI data that showed a 1% month on month

fall in February.

Of more long term significance was data from Wednesday

showing euro zone inflation came in at 2.4% year-on-year in

March, after 2.6% in February. Economists polled by Reuters had

expected the rate to stay at 2.6%, although individual country

releases in the preceding days pointed to a slightly lower

number.

Those numbers served to reinforce market expectations that

the European Central Bank will cut rates at its June meeting.

Traders will parse the minutes of the ECB's last meeting,

released later Thursday, for further clues.

"Conviction for a June cut remains strong, with pricing

for overall easing this year still closer to 90bp even as euro

rates are also feeling some spillover from the US," said rates

analysts at ING in a note.

Moves in U.S. yields remain important for what's

happening in Europe, though, note the ING analysts, the gap

between U.S. Treasury and German Bund yields has been widening

slightly, moving above 200 basis points this week, a suggestion

that investors are finally starting to price in a difference in

European and U.S. policy.

"This (200 basis point) level was last breached for a

short period in autumn last year when markets felt pressure from

rising Treasury supply prospects, however, it has basically been

a cap throughout the pandemic years," they wrote.

"The last structural move beyond that level was when

Fed and ECB policies started to materially diverge from 2017

onwards."

The spread was 198.7 basis points on

Thursday, as U.S. yields dipped somewhat after

Federal Reserve Chair Jerome Powell said Wednesday that "if

the economy evolves broadly as we expect", he and his Fed

colleagues largely agree that a lower policy interest rate will

be appropriate "at some point this year".

U.S. services activity data also showed the measure of

prices paid by businesses for inputs dropped to a four-year low,

boding well for the inflation outlook, though U.S. private

payrolls increased more than expected.

Markets still see a June rate cut by the Federal Reserve

as more likely than not, but moves in derivatives markets in

recent days show they are becoming less confident. U.S. non farm

payrolls data Friday will be closely watched as always.

Back in Europe, Italy's 10 year yield dropped 7

basis points to 3.76%, helping the German Italian spread to

narrow to 137.3 basis points.