LONDON, March 30 (Reuters) - Euro zone bond yields

nudged lower on Monday, but still hovered around multi-year

highs, as investors mulled the risks of the Iran war for

inflation and economic growth.

Data on Monday showed that inflation jumped in several

German states in March, signalling that the national inflation

rate - which is due later in the day - is also likely to have

increased.

The German data will be followed by flash euro zone

inflation figures on Tuesday.

After long hovering around the 2% target and coming in at

1.9% in February, a Reuters poll of economists is expecting

inflation to have jumped to 2.7% in March, which would be its

highest level in over two years.

"There will be an inflationary shock, that's for sure,"

Felix Schmidt, senior economist at Berenberg, said, noting that

higher gas and energy prices are feeding directly into consumer

price inflation.

Attacks from both Iran and Israel continued Monday,

while President Donald Trump over the weekend said the U.S. and

Iran had been meeting "directly and indirectly" and that Iran's

new leaders have been "very reasonable."

German 10-year bund yields, the benchmark for the

euro zone, were last 1.5 basis points lower at 3.0832%. They hit

3.13% on Friday, their highest level since May 2011 and were

last on track to end March around 43 bps higher.

Yields on Italian 10-year bonds were last down by

3.4 bps at 4.0347%, having risen to their highest since mid-2024

on Friday.

HIGHER RATES, WEAKER GROWTH?

As inflation expectations have jumped off the back of higher

energy prices due to the war, markets have raised bets on higher

central bank interest rates. Money markets were last pricing in

around three rate hikes from the ECB this year.

ECB chief economist Philip Lane on Monday told Ireland's RTE

that the ECB will not be paralysed by hesitation or adjust

policy preemptively in response to how the war in the Middle

East may impact euro zone inflation, after board member Isabel

Schnabel on Friday said there was no need for the central bank

to rush into action.

Rate-sensitive, shorter-dated bonds have moved especially

sharply in March.

German two-year bund yields were last little changed

at 2.6793%, while the Italian two-year bond yields

last dipped 2.7 bps to 2.9754%. They were last set to rise

around 67 bps and 84 bps, respectively, in March.

The longer the war continues, the more likely it is that the

ECB will have to react, Berenberg's Schmidt said. But, he

pointed out, besides higher inflation, the ECB is also

considering the possibility of economic growth stalling, or even

contracting.

"And then it's going to be tough for the ECB to hike into

that weak economy," he said.