(Updates after PMI surveys)

By Stefano Rebaudo

March 24 (Reuters) - Euro area yields were broadly

steady on Monday after Purchasing Managers' Index (PMI) data was

in line with expectations, as investors balanced risks from U.S.

tariffs against expectations for stronger growth stemming from

investment plans in Germany.

Investors already expected German PMIs to rise sharply as

the government planned a spending splurge in infrastructure and

defence, and a weak survey for France as political uncertainty

continued to weigh.

Euro zone business activity grew at its fastest pace in

seven months in March, supported by an easing in the

long-running manufacturing downturn.

U.S. President Donald Trump said there will be some

flexibility in the tariff policies that the U.S. administration

should impose early next month.

Markets will closely watch developments of negotiations

regarding a possible ceasefire in Ukraine as the Russian and

U.S. delegations began their talks in Riyadh, Saudi Arabia, on

Monday morning.

"The March picture that the PMI paints is one of modest

improving growth with easing inflation," said Bert Colijn,

economist at ING.

"However, next week could already upend that picture as

U.S. tariff announcements and possible European retaliation may

change the economic landscape significantly."

Germany's 10-year government bond yields

rose 1 basis point (bp) to 2.778%. They reached 2.746% on

Friday, their lowest level since March 5.

"With little prospect of a major boost to defence

spending, the outlook for France remains poor," said Andrew

Kenningham, chief Europe economist at Capital Economics.

Markets priced in an European Central Bank depo rate at

1.98% at the end of 2025 and 2.02% in July

next year.

They briefly bet on an 80% chance of a rate hike in summer

2026, in the days following Germany's announcement of plans to

sharply increase fiscal spending in early March. The ECB euro

short-term rate forwards indicated a deposit rate of 2.2% in

July 2026, and 2% in December 2025.

ECB board member Piero Cipollone said on Monday that key

elements such as energy price declines and the euro appreciation

strengthen the case for further interest rate cuts.

Germany's 2-year yields, which are sensitive to

European Central Bank policy rates, were flat at 2.136%.

Italy's 10-year yields were also steady at

3.819%. The gap between Italian and German government bond

yields was 104 bps.