* Central banks' decisions awaited amid rising energy

prices

* Euro zone bond yields retreat after recent highs

* Markets expect ECB rate hikes due to Middle East

conflict

(Updates for late European morning trading)

By Samuel Indyk

LONDON, March 17 (Reuters) - Euro zone government bond

yields edged lower on Tuesday as markets paused ahead of a slew

of central bank decisions later this week, even as oil prices

rose again.

Brent crude climbed about 3% as traffic through the

Strait of Hormuz remained severely disrupted, fuelling concerns

about higher energy costs and inflation.

The Federal Reserve delivers its policy decision on

Wednesday, followed on Thursday by the European Central Bank,

Bank of England and Bank of Japan.

"Markets are bracing themselves for the central bank

avalanche kicking off tomorrow," said Commerzbank rates

strategist Erik Liem in a note.

Expectations for near-term rate cuts from the Fed and BoE

have been dashed by the jump in energy prices since the start of

the U.S.-Israeli war on Iran, while markets have moved to price

in tighter ECB policy by year-end.

The hawkish global repricing has pushed up euro zone bond

yields to their highest in months, with the bloc's economy

particularly sensitive to rising energy costs, although yields

have eased slightly this week.

"The decline in yields that we've seen for a couple of days

is a pullback after the massive selloff (in bonds)," said Jussi

Hiljanen, rates strategist at SEB. Bond yields move inversely to

prices.

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

the euro zone, was down 2 basis points to 2.928% but still close

to Friday's peak of 2.994%, its highest since October 2023.

The two-year yield, which is more sensitive to

ECB rate expectations, was down 2 bps at 2.391%. It has risen

more than 40 bps since the outbreak of the conflict.

Money market traders are pricing in about 38 bps of ECB

tightening by year-end, implying one quarter-point rate hike and

about a 50% chance of a second.

SEB's Hiljanen said markets may need to price in more

tightening as he sees no quick resolution in the Middle East.

"The scenario that we have been pencilling in is that if

this continues for a couple of months with elevated energy

prices, markets should move to price two to three ECB rate hikes

this year," he said.

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

euro zone's more indebted countries, was down 3.5 bps at 3.694%,

narrowing the gap over Germany to 75.5 bps.