(Updates with afternoon trading levels)

By Sophie Kiderlin

LONDON, Jan 29 (Reuters) - Euro zone bond yields edged

lower in afternoon trading on Thursday as concerns persisted

over the strength of the euro and whether it might prompt the

European Central Bank to ease monetary policy sooner than many

currently expect.

Germany's 10-year ‌yield was last down 2.5 basis points on the

day at 2.824%.

Shorter-dated euro zone yields fell for ​a fourth straight day,

leaving the German two-year at its lowest level in a ‍week. On

Thursday, it was down 2 bps at 2.06%.

The ⁠euro, which briefly ⁠spiked above $1.20 for the first time

since mid-2021 this week, was down 0.2% on the day at $1.1932.

As ‌the euro zone is a net energy ​importer, even modest

currency gains can reduce the cost of energy and other imports,

potentially lowering inflation.

ECB policymaker Martin Kochertold the Financial Times ⁠on

Wednesday that further euro appreciation could ‍force the ​central

bank to cut rates.

With ECB officials sounding a note of concern about the impact

of the currency on the outlook for inflation, bets on ‍an ECB

rate cut by the middle of the year have increased.

However, markets would need a clean break above the $1.20

level before getting excited about pricing in another rate cut,

said Andrzej Szczepaniak, senior European economist at Nomura.

He added that rising oil prices were offsetting the euro's

strength.

"The stronger euro-dollar and also the rise ​in ‍oil prices

actually offset each other. Obviously, stronger euro-dollar

having a disinflationary impact, whereas higher oil prices

having an inflationary impact."

"I think the ECB can very ​much stay on hold from that

perspective, so long as you have a scenario whereby you sort of

maintain these sorts of levels," he said.

The oil price has risen by 16% this month to its highest

since July, driven higher by a mix of a weaker dollar and

geopolitical tensions.

Elsewhere, the Federal Reserve left U.S. interest rates

unchanged on Wednesday, as ​expected, saying inflation remained

elevated and the labour market continued to stabilise.

Fed Chair Jerome Powell struck a slightly hawkish tone at

his post-meeting press conference, but said a rate hike was not

part of policymakers' ‍baseline outlook.

(Reporting by Sophie Kiderlin; Editing by Mark Potter, Amanda

Cooper and Emelia Sithole-Matarise)