June 19 (Reuters) - Euro zone yields were slightly

higher on Thursday after the U.S. Federal Reserve held rates

steady the day before, with investors still nervously watching

developments in the Middle East.

The U.S. central bank kept interest rates unchanged as

widely expected on Wednesday, with Chair Jerome Powell saying he

expected to see more tariff-driven price hikes in coming months.

Meanwhile, financial markets were on edge over the possible

entry of the United States into the week-old Israel-Iran air

war, ahead of central bank policy decisions in Switzerland,

Norway and the UK later in the day.

Germany's 10-year bond yield was up 2.4 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 1 bp at 1.856%.

The Swiss central bank is expected to cut its policy rate to

zero from 0.25% on Thursday, but with a strong chance rates

return to negative territory at some point this year.

Markets anticipate the Norges Bank and the Bank of England

will leave their respective rates unchanged, and investor focus

will be on their policy outlooks for the rest of the year.

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

periphery, was 4 bps higher at 3.526%., leaving the

gap between Italian and German yields wider at 99.50.

(Reporting by Linda Pasquini; Editing by Amanda Cooper and

Emelia Sithole-Matarise)