While the German final manufacturing PMI came in line with projections and unchanged from the preliminary estimate, economists were expecting a reading of 50.8 for the euro zone. The German and euro zone March readings had come in at 55.1 and 52.0, respectively.

"The (euro zone) PMI data suggest that the outlook for euro-area growth is continuing to deteriorate quickly on a broad based level, paving the way for ECB rate cuts in 2H 2008," Citigroup economist Jürgen Michels stated in a research note.

Breaking down the components of the euro zone PMI, Michels noted the 0.2 point fall in the export orders outlook to 49.7 compared to the April preliminary estimate.

"The first below-50 reading in export orders since August 2003 highlights that moderating global demand and the stronger EUR is hurting euro-area manufacturers," he said.

"However, although unchanged compared to the flash estimate, the fall in the general assessment of new orders by 2.3 points M/M to 48.6, the lowest reading since May 2005, indicates that domestic demand is doing worse than foreign demand. This probably reflects the tightening in domestic financing conditions," Michels continued.

While the data would suggest the resiliency of German manufacturers compared to their counterparts in other euro zone states, Michels highlighted that "even the best in class is suffering from the tightening in financing conditions and lower global demand as the fall in the German manufacturing PMI by 1.6 points M/M suggests."

Global Insight chief UK and euro zone economist Howard Archer suggested that the European Central Bank should note that despite weakening manufacturing activity, firms were able to pass on elevated costs to consumers.

Archer also believed that the ECB will maintain their tone on inflation at their rate decision meeting scheduled for May 8 and leave the refinancing rate unchanged.

"Nevertheless, signs are mounting that Eurozone economic activity is starting to increasingly falter in the face of serious headwinds," Archer said in a research note.

"Indeed, we believe that markedly weaker Eurozone growth over the coming months, an extended credit crunch and very strong euro will gradually dilute underlying inflation pressures and concerns, and ultimately lead the ECB to cut interest rates before the end of the year."

"However, September now seems the very earliest that interest rates will be cut, and the ECB could well hold off from acting beyond then," Archer concluded.

When German PMI data was released at 3:55 a.m. EDT, the yield on the Bund rose to 4.1198% from 4.1169%. The Schatz registered no change.

The euro fell to $1.5463 from 1.5476 USD. It registered no movement against the pound sterling.

Five minutes following the release of euro zone PMI data at 4:00 a.m. EDT, the Schatz rose to 3.749% from 3.738%. The yield on the Bund also increased, going to 4.134% from 4.1171% within 15 minutes.

At 4:00 a.m., the euro showed no reaction against the dollar. However, vis-à-vis the pound, the euro rose to £0.78037 from £0.7794 in two minutes.

European traders will be watching closely for the March euro zone producer price index, scheduled for release on May 6.

By Todd Wailoo, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it