* Bond yields lower after hitting multi-year peaks

* Analysts expect high energy prices and inflation to

keep long-end yields elevated

* ECB set to hike to bring inflation under control

(Updates for European late morning trading)

By Samuel Indyk

LONDON, May 20 (Reuters) - A selloff in euro zone bonds

paused on Wednesday with yields remaining close to the previous

day's multi-year highs reached on expectations that global

central banks will need to raise rates to tame inflation caused

by higher energy prices.

Bonds were supported on Wednesday after two oil tankers exited

the Strait of Hormuz, lifting hopes that the war in Iran may

soon be resolved as U.S. President Donald Trump and Vice

President JD Vance talked up the prospects of a peace deal.

Cooler-than-forecast British inflation was also alleviating some

pressure on bond markets.

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

euro zone, was last down 3 basis points (bps) at 3.16%. It rose

to 3.2% on Tuesday, its highest level in 15 years.

HIGHER LONG-END YIELDS

Even if a deal to end the war is agreed soon, oil and gas

supplies are still expected to face severe disruption for

months, likely boosting inflation and crimping growth.

"The shortcomings resulting from the blockade of the Strait

of Hormuz are going to continue for a while," said DZ Bank

analyst René Albrecht.

Albrecht said that elevated oil prices, higher inflation and

a resilient U.S. economy point towards higher long-end rates

going forward.

Governments across the globe are expected to provide fiscal

support to lessen the impact of higher oil prices, which could

also pressure the long end of the curve. Germany last month

announced fuel tax cuts to ease pressure on consumers and

businesses.

Germany's 30-year yield was last down 1 bp at

3.688%, after rising to 3.716% on Tuesday, its highest level

since mid-2011.

ECB TO HIKE?

Markets were quick to shift their expectations for central banks

at the outbreak of the war. Prior to the conflict, the European

Central Bank was expected to keep interest rates on hold through

2026, but markets are now almost fully pricing in three rate

hikes by the end of the year.

Germany's two-year yield, which is highly sensitive

to changes in near-term interest rate expectations, was down 3

bps on Wednesday at 2.714%, and remains about 5 bps below its

late March high.

Below-forecast UK inflation was helping the mood on Wednesday,

although the outlook still looks tough as the Iran war pushes up

energy prices.

Japanese bond yields were also a touch lower on Wednesday -

after rising to a 29-year peak on Tuesday - following a solid

auction of 20-year bonds.

"We had some good news out of the UK this morning with the

CPI print. That has helped (bonds)," said DZ Bank's Albrecht.

Britain's 10-year gilt yield was down 7.5 bps at

5.05%, while the U.S. 10-year yield was at 4.65%,

after hitting a 16-month high the day before.