LONDON, Jan 24 Reuters Euro zone government bond yields dipped on Wednesday as traders digested data showing euro zone business activity contracted again in January while looking ahead to Thursday39;s European Central Bank meeting.

Germany39;s 10 year yield, the benchmark for the euro zone was at 2.31, down around one basis point bp, retracing some of the previous day39;s 9 basis point increase which took it to a 7week high.

The yield has climbed fairly steadily this year, having dipped below 2 in late 2023 on market bets that central bank rate cuts would come as soon as March this year, expectations that have since been pushed back.

On the agenda on Wednesday was the release of activity data which showed the euro zone39;s preliminary composite PMI rose to 47.9 this month from December39;s 47.6, just shy of expectations in a Reuters poll for 48.0 but marking its eighth month below the 50 level separating growth from contraction.

The manufacturing outlook did improve somewhat but remained in contractionary territory and was partly offset by a steeper decline in the bloc39;s dominant services industry.

Soft services PMI again, Europe is stuck in a rut, said Kenneth Broux senior strategist FX and rates at Societe Generale.

The ECB should understand that wages do not pose a problem to inflation when demand is weak and bank credit conditions are tight, he added.

The ECB has singled out wages as the biggest inflationary risk with unemployment at a record low. ECB chief…