(Updates prices)

LONDON, Aug 12 (Reuters) - Euro zone government bond yields

fell on Wednesday as oil prices held steady and data showed U.S.

inflation cooled slightly on a year-over-year basis last month.

Traders were awaiting more details on talks to reopen the

Strait of Hormuz, although an imminent deal looked further away

amid new attacks on ships in the Gulf and a hardening of

positions by the U.S. and Iran.

Oil prices remained relatively subdued, however, with

Brent crude flat at $88.90 a barrel.

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

was last down 2 basis points (bps) at 3.157%.

U.S. inflation came in at 3.4% on a year-over-year basis in

July, official data showed, down from 3.5% a month earlier and

in line with economists' expectations.

U.S. Treasury yields fell slightly after the data, which

also showed core inflation - which strips out volatile food and

energy prices - cooled slightly on a year-over-year basis last

month.

Germany's 2-year bond yield was last down 1 bp at

2.774%.

Investors and analysts said the U.S. central bank's Federal

Open Market Committee will want to look closely at August's

inflation reading before it makes its next interest rate

decision in September.

"With another round of inflation data due before the

September FOMC meeting, it remains all to play for, but today's

in-line report was a good start," said Lindsay Rosner, head of

multi-sector fixed income investing at Goldman Sachs Asset

Management.

Traders slightly trimmed their bets on further rate hikes

this year from the European Central Bank. Money markets last

pointed to 39 basis points of further monetary tightening, down

around 1 bp from earlier in the session.

The size of the U.S. economy and its financial markets

means its economic data is closely watched around the world and

can influence expectations about other central banks' monetary

policy.