FOREX-Euro boosted by data, rise in Bund yields

* French PMI bolsters euro in European trade

* Sterling up 1 pct vs dollar after retail sales beat

* Fed minutes confirm June rate hike very unlikely

By Anirban Nag

LONDON, May 21 (Reuters) - The euro rose against the dollar on Thursday for the first time this week, helped by nascent signs of a recovery in euro zone activity and a rise in German Bund yields which narrowed the spread over U.S. Treasuries.

Data on Thursday showed the composite flash PMI for the euro zone fell to 53.4 from 53.9, missing the 53.8 forecast in a Reuters poll. Despite the drop, data compiler Markit (NasdaqGS: MRKT - news) said, the euro zone is on track to grow at 0.4 percent in the current quarter.

The euro touched a high of $1.1182, up 0.7 percent on the day and off a three-week low of $1.1062 struck on Wednesday. It had started to rise in early London trade after the French PMI survey beat expectations.

It extended those gains amid a rise in German 10-year Bund yields, which jumped 6 basis points to a day's high of 0.68 percent. That saw the spread between German bund yields and Treasuries narrow to around 158 basis points.

"The narrowing of yield spreads over U.S. Treasuries is having an impact on euro/dollar," said Jeremy Stretch, head of currency strategy at CIBC World Markets. "Having said that, I would still prefer to sell the euro above $1.12."

Part of the reason for gains in the euro remaining limited is a very accommodative monetary policy stance by the European Central Bank. Earlier this week, board member Benoit Coeure said the central bank looked to accelerate the pace of money printing to buy government bonds over the next two months.

The prospect of more euros flooding onto the market saw the common currency move lower across the board earlier this week.

"In the first-quarter, data from the euro area was positive, but in April and May it's showing signs of a slowdown. All in all, it's too early for any tapering in the quantitative easing programme by the ECB," said Yujiro Goto, currency strategist at Nomura. "We think the euro will gradually decline."

The euro's gains saw the dollar step back from a two-week peak against a basket of major currencies with the minutes from the Federal Reserve's latest meeting offering no major surprises for investors. It did little to change expectations that the Fed will probably wait until late this year before raising interest rates.

The minutes showed policymakers believed it would be premature to raise rates in June, in line with a view widely held in the market after a dismal start to the year.

The dollar index stood at 95.082, having risen as high as 95.837 on Wednesday. Against the yen, the greenback fell 0.3 percent to 121 yen, having hit a two-month peak of 121.49 on Wednesday.

Another big mover in the European session was sterling. It rose 1 percent against the dollar to $1.57 after UK retail sales beat expectations. (Editing by Mark Heinrich)