(Updates after inflation data, adds context and analyst

comments)

LONDON, July 1 (Reuters) - Euro zone bond yields rose

slightly on Wednesday after Iran said it would not meet U.S.

delegates for talks in Qatar, casting doubt on the peace

process, and as moves in U.S. Treasuries spilled over into

Europe.

Yet shorter-dated euro zone yields dipped after data showed

inflation slowed more than expected in June, reducing pressure

on the European Central Bank to raise interest rates again.

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

the bloc, rose 1.5 basis points (bps) to 2.924%.

Oil prices initially rose after Iran said on Tuesday that it

would not meet top U.S. envoys who flew to the region,

suggesting the two sides remain far apart on key pillars of the

framework deal.

Yet Brent crude fell back and last traded at $71.90,

around its lowest since the war began in late February.

A rise in U.S. Treasury yields also seemed to be having an

impact.

Analysts said the move could be driven by quarter-end

rebalancing - when investors sometimes sell bonds to raise cash

- as well as nerves about Federal Reserve Chair Kevin Warsh's

appearance at the European Central Bank conference in Sintra,

Portugal, on Wednesday.

"Markets seem rather anxious ahead of Warsh at Sintra, as

well as the non-farm payrolls report tomorrow," said Pooja Kumra

at TD Securities, referring to jobs data that is expected to

continue a string of strong U.S. releases keeping the pressure

on the Fed to raise interest rates.

EURO ZONE INFLATION DROPS

Data on Wednesday showed euro zone inflation slowed to 2.8%

in June, down from 3.2% in May and below the 3% expected by

economists.

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

to ECB rate expectations, fell slightly and was last down 1

basis point at 2.528%.

Traders in money markets were last pricing in about 23 bps

of monetary tightening this year, meaning they see another

increase as highly likely but not certain.

"If energy prices remain around current levels it

(inflation) will fall again in July," said Jack Allen-Reynolds

at Capital Economics.

"This makes us more confident in our view that the ECB will

not raise interest rates any further."

ECB policymakers have struck different tones, with Alexander

Demarco saying on Wednesday that the central bank should not

rush into a further increase while Joachim Nagel has said

inflation remains too high.

(Reporting by Harry Robertson

Editing by Muralikumar Anantharaman and David Goodman

)