Bunds rose to their highest since March 13, closing up 1.5 percent on the week, after seeing their biggest weekly loss since 2001 the week prior.

Optimism over the global economy, fueled last week by an improvement in US data, was undermined somewhat by weak factory activity data inChinaand the euro zone on Thursday.

"Over the past few days we had some macro disappointments coming through, which probably took the market and most observes by surprise," Rainer Guntermann, strategist at Commerzbank said. "Now the market may start to question the robustness of the recovery."

He said the bounce back in Bunds this week was also to do with a support level at 135.25 - the 200 day moving average - but he did not expect a resumption of the bull-run that took the Bund to a contract high of 139.06 on March 12.

The German Bund future saw a settlement close of 137.39 - up 30 ticks on the day. Charles Berry, a trader at Landesbank Baden-Wurttemberg, however, still saw potential for the future hitting 140 over the next two months.

Two traders earlier said there had been talk of asset reallocation away from equities. But European shares recovered to close fractionally higher.

ITALYSALE

Italian and Spanish bonds had come under pressure in early trade but reversed to trade higher on the day by the end of the session.

Spanish bond yields fell 11 basis points to 5.40 percent and Italian yields were down 4.3 bps at 5.06 percent. Traders said market participants were covering previously held short-positions - or bets that those bonds would fall - ahead of the weekend.

Spainhas been hit recently by worries over its failure to stick to agreed deficit targets.

Meanwhile,Italyhas come under close scrutiny as Prime Minister Mario Monti tried to drive through labour reforms. Italy's cabinet on Friday approved the hotly contested reform and said it would be presented to parliament as an ordinary bill..      Market sentiment for peripheral bonds would be tested next week, withItaly's sale of medium-to-long term bonds.

Italyis likely to draw healthy demand for the paper as cash-rich domestic banks look to book in higher yields after the recent sell-off in lower-rated euro zone debt.

Greece's newly-restructured bonds suffered their worst trading day since being launched on March 12, with yields on the 2023 bond rising by more than a percentage point to top 20 percent.

"It's not something unexpected.Greecestill has a long way to go ... maybe the debt is a bit lower but actually little has changed," a trader inAthenssaid.

Greececarried out the largest-ever sovereign debt restructuring earlier this month to slice 100 billion euros off its public debt and unlock urgently-needed bailout cash.

Traders said few bonds were changing hands at current prices but that dealers were marking the yield higher, reflecting pessimism that the restructuring would be enough to set the Greek economy on a sustainable path.