* Euro zone bond yields mostly higher

* Traders weigh hawkish shift from Fed

* Markets pricing in one more ECB rate hike this year

By Sophie Kiderlin

LONDON, June 18 (Reuters) - Euro zone government bond yields

were broadly steady on Thursday as traders weighed a hawkish

shift from the Federal Reserve in a busy week for global central

banks, while the U.S. and Iran said they had signed a deal that

would reopen the Strait of Hormuz.

Yet some tensions appeared to remain, even as the U.S. and Iran

released an interim agreement to end the war, with President

Donald Trump threatening to resume attacks and kill Iranian

officials if they failed to honour their commitments.

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

the euro zone, was flat at 2.9254% after declining for five

consecutive days. That rally - yields move inversely to prices -

was the longest since mid-February.

The conflict had seen government bonds come under pressure,

with yields jumping as the outlook for inflation and interest

rates shifted due to the war-related oil price shock.

The German 10-year yield is still close to 30 basis points

above its pre-war levels.

Brent crude futures were last down around 3.1% at

$77.05 a barrel, trading around early-March levels.

EYES ON CENTRAL BANKS' REACTIONS TO IRAN WAR

Another driving force for markets this week has been central

bank interest rate decisions, especially the debut meeting for

new Federal Reserve Chairman Kevin Warsh, appointed by Trump

with an expectation that he would deliver the rate cuts the

president has called for.

However, the Fed held interest rates steady on Wednesday, as

expected. And new quarterly projections showed that nine

policymakers now see a hike in rates by the end of 2026, while

an updated policy statement removed language that had been used

to flag the likelihood of further reductions in borrowing costs

this year.

Short-term U.S. Treasury yields rose sharply on Wednesday as

expectations for tighter Fed policy grew, but edged lower again

on Thursday.

"Aside from the (unanimous) decision itself, Warsh already

left some marks," said Erik Liem, rates strategist at

Commerzbank, noting that the new Chair does not seem to think

forward guidance is a good tool.

"The monetary policy statement is much more streamlined and

concise," he said, adding that the Fed would restrict its

communication to key information.

The Swiss National Bank and Bank of England both left interest

rates unchanged on Thursday. The European Central Bank last week

raised rates, to 2.25% from 2%, with the Bank of Japan following

suit earlier this week.

ECB chief economist Philip Lane said on Thursday that the

euro zone's economy may now be able to withstand slightly higher

interest rates without losing steam, with the upper end of the

neutral range for the central bank's benchmark rate - which

neither stimulates nor curbs growth - rising from 2.25% to 2.50%

based on bond market prices.

His comments may be taken as a sign the ECB can afford to

tighten further, although Lane stressed he was referring to the

longer term.

Markets have been paying close attention to comments from

policymakers as they have tried to assess what impact the Iran

war might have on the economy, with worries about rising

inflation, higher rates and weaker economic growth taking hold.

Money markets were last pricing in at least one more rate

hike from the ECB this year, with a chance of a second.

The yield on the German 2-year bond, which is

more sensitive to rate and inflation expectations, was last up

2.3 basis points at 2.6061%.