(Updates price moves, adds context, analyst comment)

By Linda Pasquini

June 19 (Reuters) - Euro zone yields were slightly

higher on Thursday, as investors focused on a series of monetary

policy decisions while watching developments in the Middle East.

The U.S. central bank held rates steady as widely expected

on Wednesday, with Chair Jerome Powell saying he expected to see

more tariff-driven price hikes in coming months.

Investors were also watching a series of central bank policy

decisions in Europe, with Norway's central bank's surprise rate

cut in focus.

Meanwhile, financial markets remained on edge over the

possible entry of the United States into the week-old

Israel-Iran conflict.

Germany's 10-year bond yield was up 2 basis

points on the day at 2.52%, retracing some of the previous day's

fall, but still trading within its recent range.

The yield on the two-year Schatz was up half a basis point

at 1.85%.

Norway's central bank unexpectedly cut its policy interest

rate by 25 basis points to 4.25% on Thursday, its first

reduction of borrowing costs in five years.

The decision sent yields on the 3-year Norwegian bond down

17 bps in their biggest intraday drop since March 2023.

"Obviously, today's decision to cut rates was a big

surprise," said Erica Dalstoe, chief strategist for Norway at

SEB.

After the earlier-than-expected reduction on Thursday,

markets have now priced in the risk of an additional rate cut by

the end of the year compared to the two cuts in 2025 expected

previously, Dalstoe said.

She said that "pretty much explains the reactions we're

seeing in the short end of the yield curve."

Elsewhere, the Swiss National Bank cut its interest rate to

zero as expected.

Investors will now turn to the Bank of England's policy

decision and outlook later in the day, with the bank expected to

keep rates unchanged.

If the European Central Bank decides to move on interest

rates in the next six months, it would most likely be a cut, ECB

policymaker Francois Villeroy de Galhau said on Thursday, while

Bundesbank President Joachim Nagel said the ECB was on the right

track when it came to monetary policy.

The ECB signalled a pause in policy easing this month

despite projections showing price growth dipping below its 2%

target temporarily due to the strong euro and low oil prices.

Italy's 10-year bond yield, the benchmark for the euro zone

periphery, was 3 bps higher at 3.515%.

The gap between Italian and German yields was wider on the

day at 99.10, after hitting its widest in three weeks earlier in

the session.