(Updates with moves after Trump's social media post)

* Inflation data mixed in major euro zone economies

* ECB seen likely to hike interest rates in June

* Iran deal hopes, oil prices driving rate expectations

By Lucy Raitano and Alun John

LONDON, May 29 (Reuters) - Germany's 10-year bond yield

dropped to its lowest level in seven weeks on Friday as traders

became more hopeful the U.S. and Iran would reach an agreement

that would reopen the crucial Strait of Hormuz.

Bonds across the euro zone rallied in late afternoon

trading in Europe, sending yields lower, after U.S. President

Donald Trump said in a social media post that he would be

meeting with officials in the White House on Friday to make a

final decision on a deal.

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

euro zone, dropped to as low as 2.926%, down around 3 basis

points on the day, its lowest level since April 8. It has fallen

10 bps this week as hopes about a deal grew.

The two-year German bond yield - more sensitive to

ECB interest rate expectations - dropped by a similar amount to

2.53%.

Rate expectations have been swinging on headlines from the

Gulf and resulting moves in oil prices, as traders try to assess

whether high energy costs will spill over into broader price

rises.

"In terms of market reactions, if a deal is agreed upon, we

should see another leg higher in risky assets and lower in

rates. However, positioning suggests that the rates market

should see a greater reaction than equities," Mohit Kumar, chief

European economist at Jefferies, wrote in a note before Trump's

social media post.

EUROPEAN INFLATION DATA PROVIDES MIXED PICTURE

Data released on Friday showed inflation in the euro zone's four

largest economies hovered above the ECB's 2% target for a third

straight month in May.

But the picture was somewhat mixed as German figures were

cooler than expected, the Spanish reading was hotter than

expected, as was Italy's. In France, inflation came in below the

forecast but crept higher on a month-over-month basis.

That data did little to change expectations of an ECB rate hike

next month, which money markets see as all but certain. However,

they have turned more sceptical about policy tightening later in

the year, pricing a second hike by October, but only seeing a

small chance of a third move by the end of the year.

Underscoring policymakers' concern about inflation, ECB research

on Friday showed euro zone consumers, already scarred by the

Ukraine war, have changed their attitudes more quicklyin

response to the Iran conflict, meaning the economic hit could be

deeper and faster.

"Today's inflation data are further cementing the case for a

rate hike," Rabobank analysts said in a note, as they also

flagged a pick-up in consumers' medium-term inflation

expectations.

"However, we still believe that the current backdrop is less

conducive to broader and protracted inflationary pressures than

2021-2022."

Separate data, however, showed France's economy shrank slightly

in the first quarter. A preliminary reading had shown no change

in the euro zone's second-largest economy.