(Updates news and prices at 1428 GMT)

By Stefano Rebaudo

May 23 (Reuters) - German 2-year bond yields hit their

highest in six months on Thursday as economic data from the euro

area and Britain led investors to scale back their bets on

future European Central Bank (ECB) rate cuts to 60 basis points

in 2024.

The Purchasing Managers' Index (PMI) for the euro zone

climbed to 52.3 this month, from April's 51.7, beating

expectations in a Reuters poll for a more modest lift to 52.0.

Negotiated pay growth in the euro zone picked up slightly in

the first quarter of 2024, ECB figures showed, bolstering the

case for caution in cutting interest rates from record highs.

Germany's 2-year yield, more sensitive to policy

rate expectations, hit its highest since mid November, last up 9

basis points (bps) at 3.10%.

Wednesday's inflation figures from Britain led investors to

discount less than 65 bps of ECB rate cuts in 2024 for the first

time this year, driving yields to multi-week highs.

Money markets last priced around 60 bps of ECB rate cuts in

2024 - which implies two 25 bps moves and a

less than 50% chance of a third cut this year - from 67 bps on

Wednesday before the British inflation data.

Analysts take for granted an ECB move in June, but also

highlight that markets have started pricing in less than the cut

every quarter thereafter which had been implied by derivatives

in the last few months.

"The market repricing since April had already taken out much

of the probability for cuts at 'in between' meetings, but it is

now starting to challenge quarterly cuts, with around 65 bp

priced to year-end," Citi analysts said in a research note.

Meanwhile, Federal Reserve minutes were seen as hawkish as

policymakers acknowledged disappointment over recent inflation

readings at their last meeting.

"The PMIs for May suggest that the euro zone economy

continued to expand in Q2 while price pressures eased but

remained high in the services sector," said Franziska Palmas,

senior Europe economist at Capital Economics.

"The ECB is still very likely to go ahead with a rate cut in

June, but if the economy continues to hold up well, cuts further

ahead may be slower than we had anticipated," she added.

Germany's 10-year yield, the bloc's benchmark,

rose 7.3 bps to 2.60% after hitting its highest level since late

April.

"Today's purchasing managers' indices support our call for a

continuing economic recovery in the euro zone," said Salomon

Fiedler, economist at Berenberg, adding softer input and output

inflation supports expectations for a rate cut in June.

He forecasts gross domestic product to expand by 0.2% in the

second quarter, before accelerating further.

Italy's 10-year yield rose 7.6 bps to 3.90%,

touching its highest in more than a week.

The gap between Italian and German 10-year bond yields

- a gauge of the risk premium investors seek to

hold bonds of the euro area's most indebted countries - stood at

129 bps.

European Commission figures released on Thursday also showed

euro zone consumer confidence improved to -14.3 this month from

-14.7 in April. Economists polled by Reuters had expected a rise

to -14.2.