LONDON, April 1 (Reuters) - Euro zone bond yields

dropped sharply on Wednesday after U.S. President Donald Trump

said the end of the war on Iran could be near, a development

that would ease traders' fears about high energy prices driving

inflation and interest rate hikes.

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

fell 7 basis points in early trading to 2.93%, its lowest in two

weeks.

Italy's 10-year yield dropped more, down 15 bps to 3.76%.

Italian debt has underperformed in recent weeks on the view the

country is more exposed to higher energy prices.

"We'll be leaving very soon," Trump told reporters at the

White House on Tuesday, saying the exit could take place "within

two weeks, maybe two weeks, maybe three."

The remarks underscored the shifting and at times

contradictory timelines and statements from Washington about how

and when the war, now in its fifth week, might end.

Markets also slightly eased their bets on the amount of

European Central Bank rate hikes they expect. Sixty basis points

of hikes are now priced by December, indicating two 25-bp hikes

and some chance of a third.

Earlier in the week, markets expected three ECB rate hikes

this year. Before the war, they expected it to stay on hold for

2026, with a chance of further easing.