LONDON, July 9 (Reuters) - Euro zone bond yields dipped on

Thursday as oil prices steadied, but they remained at around

their highest in seven weeks after surging the previous day on

fears of a collapse in the deal between the U.S. and Iran to end

their war.

Germany's 10-year bond yield fell 2 basis points

to 3.069% after jumping 10 bps on Wednesday to 3.094%.

Oil prices were little changed on Thursday after rising more

than 5% on Wednesday following U.S. President Donald Trump's

comments that he thought the memorandum of understanding with

Iran to end the war was "over". Brent crude last traded

at around $77.80 a barrel.

Energy prices have fallen sharply since the U.S. and Iran

reached a deal in mid-June, which allowed flows to resume

through the key Strait of Hormuz. But commodities markets are

highly sensitive to any signs that trade through the waterway

could again stop.

The U.S. military said on Wednesday it launched fresh

strikes on Iran to keep the strait open to shipping, triggering

Iranian attacks on Kuwait and Bahrain in the latest escalation.

Germany's 2-year bond yield, which is sensitive

to European Central Bank rate expectations, fell 4 bps on

Thursday to 2.669% after rising 12 bps the day before. Yields

move inversely to prices.

Traders in money markets were pricing in 35 bps of further

ECB monetary tightening on Thursday, down from 40 bps at one

point on Wednesday but still well above the 21 bps expected at

the start of the week.

"The next couple of days would be key to deciding whether we

get further escalation, or this was another show of force," said

Mohit Kumar, chief European economist at Jefferies.