(Updates prices)

LONDON, June 19 (Reuters) - Euro zone government bond yields

rose on Friday as oil prices ticked higher after U.S.-Iran peace

negotiations in Switzerland were abruptly called off and as

European Central Bank policymakers talked tough on inflation.

Germany's 10-year bond yield, the benchmark for

the bloc, rose 6 basis points to 2.987%, having fallen to a more

than two-month low of 2.915% on Wednesday. Bund yields were on

track to end the week little changed, with a dip of just 1 bp.

Oil prices inched into positive territory to trade

at $80 a barrel, above lows touched on Thursday after

Switzerland said U.S. talks with Iranian negotiators on a pact

to end the Middle East conflict would not take place on Friday.

Brent and U.S. crude prices have fallen sharply since the

U.S. and Iran reached a tentative agreement to end their war at

the weekend but doubts remain about the longevity of the deal,

which faces opposition from some U.S. Republicans and many in

Israel.

ECB policymaker Pierre Wunsch told Reuters that the central

bank may raise interest rates one more time as soon as next

month if it sees more evidence of euro zone inflation spreading

beyond energy, even with the interim peace deal in place.

Wunsch's comments followed remarks by ECB chief economist

Philip Lane that the euro zone's economy may now be able to

withstand slightly higher interest rates without losing steam.

The comments added to the upward pressure on yields, with

Germany's 2-year bond yield up 4 bps at 2.64%.

Short-dated yields, which are more sensitive to ECB rate

expectations, have fallen less than their longer-dated peers as

traders continue to fully price in another rate hike this year,

after last Thursday's 25 bps increase to 2.25%.

"Despite oil marking its lowest price since the beginning of

March, money markets continue to firmly price in another hike

from the ECB to be delivered in September or October," said

Benjamin Schroeder, senior rates strategist at ING.

"Uncertainty on the geopolitical front remains, and the ECB

might be reluctant to change its direction having just delivered

a rate hike," he said.

"Sticking to more hawkish communication also ensures that

higher market rates will continue to do their part in containing

inflation."

Italy's 10-year yield rose 7 bps to 3.71%, up

from Wednesday's three-month low of 3.619%.