LONDON - Germany's 10-year bond yield fell further into negative territory on Thursday after a survey indicated that business activity in the bloc was weaker than expected in May, the latest sign that trade wars are dampening economic growth.

IHS Markit's Flash Composite Purchasing Managers' Index(PMI), a good guide to economic health, nudged up to 51.6 this month from a final April reading of 51.5, but was below market expectations for 51.7.

While French business activity jumped to its strongest level in six months, German business activity undershot expectations, prompting a further fall in German bond yields just as renewed Brexit uncertainty boosts demand for bond safe havens.

It has been a dismal few months for the global economy with the trade conflict sending a shiver through markets and chilling business activity across the world.

Europe in particular has seen its recovery sputter and Germany’s industrial sector — the continent’s engine room — has gone into reverse.

But anyone hoping the data will prompt a change in European Central Bank policy will be disappointed, said Commerzbank rates strategist Rainer Guntermann.

"It is a mixed picture but the data for April is not weak enough for the ECB to revise down their GDP expectations ... and when the ECB council looks at the data flow ... overall it is still a mixed picture," he said.

German business morale also deteriorated more than expected in May, the Ifo institute survey indicated on Thursday.

Germany's 10-year government bond yield fell three basis points to minus 0.112%, sliding back down towards recent 2-1/2 year lows of minus 0.132%.

French 10-year yields fell to 0.29%, down two basis points, with yields across the bloc 2-3 bps lower on the day.

Heightened uncertainty in Britain, where pressure was mounting on Prime Minister Theresa May to step down, added to demand for higher-rated bonds.

Ten-year U.S. Treasury yields tumbled to 2.35%, their lowest level in almost two months, while Britain's 10-year bond yield fell to 0.98% -- its lowest level since late March.

Minutes released on Wednesday from the U.S. Federal Reserve's last meeting suggested that rates were likely to remain at current levels for some time, supporting demand for bonds.

European parliamentary elections likely to demonstrate increased support for populist, eurosceptic parties were also in focus for bond markets.

Investors are weighing the chances of eurosceptic groups grabbing a third of the seats in the elections, which began on Thursday and end on Sunday.

Goldman Sachs estimated that Britain's last-minute participation would boost support for eurosceptic groups in the European Parliament by about 1.5 percentage points. Overall, Goldman saw support for the populist parties rising to 20-25% from around 15%.

(Reporting by Virginia Furness and Tommy Wilkes; Editing by Raissa Kasolowsky and Kevin Liffey) ((Virginia.Furness@thomsonreuters.com; +44207 542 5477;))