LONDON - Euro zone government bond yields edged higher on Friday, as investors took profit on this week's drop in short-dated yields to six-month lows, after hefty sell-offs in global equities sparked some safe-haven flows into fixed income.

Mounting expectations that the Federal Reserve will cut interest rates in September have drummed up enthusiasm for Treasuries, which has carried through in the euro zone market.

German two-year Schatz yields, which are the most sensitive to shifts in expectations for European Central Bank monetary policy, are heading for a third weekly fall.

Two-year yields dipped 1.3 basis points on Friday to 2.6983%, but have dropped by 8 bps so far this week to their lowest since February, for their strongest performance in more than a month.

Rainer Guntermann, a strategist at Commerzbank, said the euro zone market was responding more to broader risk appetite than rate-cut expectations, as market pricing for two ECB cuts this year looks fairly stable.

"(Euro zone government bond) spreads are trading aligned with risk sentiment again and are no longer directional to the front-end, as ECB rate cut expectations no longer compensate for the deteriorating macro outlook in case of weaker data," he said in a note.

The gap between two-year yields and those on longer-dated bonds has also shrunk. The premium over 10-year Bund yields is at 25 bps, close to its smallest since January.

German 10-year bond yield, the benchmark for the euro zone bloc, was up 4 bps at 2.45%.

Italian 10-year yields were up 5.2 bps at 3.827%, set for a weekly rise of nearly 5 bps, reflecting the outperformance of safe-havens such as German bonds.

The gap between German and Italian yields has widened by 5 bps this week to 133.80 bps, having touched its widest since early July.

The main macro event later in the day is the U.S. personal consumption expenditures index (PCE), the Fed's preferred measure of inflation. Euro zone bonds may catch a bid if the core rate undershoots expectations for a year-on-year rise of 2.5%.

(Reporting by Amanda Cooper; Editing by xxxxx)