June 23 (Reuters) - Euro zone government bond yields

rose on Monday as investors worry about the potential

inflationary impact of an escalation in the Middle East but wait

to see if Iran will retaliate against U.S. attacks on its

nuclear facilities.

U.S. President Donald Trump warned Tehran it would face more

devastating attacks if it does not agree to peace.

Markets were also awaiting the release of the flash

composite Purchasing Managers' Index for Germany and the euro

area.

German 10-year government bond yields, which

serve as the benchmark for the wider euro zone, rose 2 basis

points (bps) to 2.53%.

The yield on benchmark U.S. 10-year notes was up

2 bps at 4.40%.

Oil prices jumped to their highest since January.

Holger Schmieding, chief economist at Berenberg, said that a

protracted disruption of oil and gas exports from the Gulf

region "seems unlikely".

An Iranian closure of the Strait of Hormuz, the crucial

conduit for around 20% of global oil and gas shipments, is the

key economic risk for most market watchers.

"However, trying to throttle energy exports from the Gulf

region would be a high-risk strategy for Tehran," Schmieding

added, arguing that such a move would likely upset China and

many other countries that do not usually side with the U.S.

Money markets priced in a European Central Bank deposit

facility rate at 1.79% in December compared

to 1.77% late Friday.

The yield on two-year German government bonds - more

sensitive to expectations for ECB policy rates - was up one bp

at 1.87%.

Italy's 10-year yields rose 1.5 bps to 3.54%.

The Italian yield gap versus Bunds - a market

gauge of the risk premium that investors demand to hold Italian

debt - widened to 101 bps.