Euro zone bond yields dip before PMIs

LONDON, Oct 24 (Reuters) - Euro zone government bond yields edged lower on Thursday as investors awaited business activity data that could confirm the region's sluggish growth and potentially justify a pick-up in the pace of European Central Bank rate cuts.

Traders are fully pricing a 25 basis point (bp) rate cut from the ECB in December, and around a 40% chance of a larger 50 bp move.

Purchasing managers' index data from Germany, France and the euro area will be released throughout the morning and worse-than-forecast data could add weight to policymakers who favour an acceleration in easing after three quarter-point rate cuts since June.

Germany's 10-year yield, the benchmark for the euro zone, was down 1.5 bps at 2.296%. It rose to 2.334% on Tuesday, its highest since Sept. 3.

The two-year yield, which is more sensitive to changes in interest rate expectations, fell 2 bps to 2.114%.

Italy's 10-year yield, the benchmark for the more indebted countries in the euro zone's periphery, fell 2.5 bps to 3.503%, pushing the spread between Italy and Germany's 10-year yields to 119.5 bps. (Reporting by Samuel Indyk; Editing by Toby Chopra)