* Markets expect the ECB to keep depo rate unchanged on

Thursday

* Investors price in 43 basis points of tightening by

year-end

* Oil prices steady near $89/barrel

(Edits paragraph 1, adds analyst comments in paragraphs 9, 10

and 13)

By Samuel Indyk

LONDON, July 21 (Reuters) - Euro zone government bond yields

were steady on Tuesday as Brent crude futures hovered around $89

per barrel, with focus turning to the European Central Bank's

policy announcement on Thursday.

Investors were also watching Britain's gilt market after new

Prime Minister Andy Burnham picked former defence minister John

Healey - who was a junior minister in the Treasury from 2002 to

2007 - as his finance minister.

Germany's 10-year bond yield was last up less than 1

basis point (bp) on the day at 3.157%, after earlier hitting its

highest level in eight weeks at 3.1666%.

ALL ABOUT ENERGY

Bond markets have been driven by energy prices in recent

weeks, according to Hauke Siemssen, rates strategist at

Commerzbank.

Energy prices have been rising following military strikes by

both the United States and Iran, with maritime traffic through

the vital Strait of Hormuz chokepoint effectively shut down.

Brent futures touched a five-week high on Monday above $91

per barrel, before dropping below $89 per barrel on Tuesday and

then edging up again to $89.70 a barrel. Benchmark Dutch

wholesale gas prices rose to their highest intraday

level in four months on the same day, adding to worries about

inflation and strengthening the case for tighter policy from the

ECB.

The central bank meets this week and will most likely hold

its deposit rate steady at 2.25%, following a rate rise in

June.

Further ahead, investors were pricing in about 43 basis

points of tightening from the ECB by the end of the year, or the

equivalent of one quarter-point rate hike and a more than 70%

chance of a second.

"What the market is pricing in terms of ECB hikes is a lot,"

said Commerzbank's Siemssen.

"A hike in September can be justified with the inflation

figures, but then I think the bar will be high for another hike

into restrictive territory as they have to keep an eye on

growth," he added.

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

to changes in ECB policy expectations, was steady at 2.776%

after touching a two-year high of 2.8174% on Monday.

Meanwhile Britain's gilts slightly outperformed after PM

Burnham's choice of John Healey as finance minister.

"The Prime Minister's surprise pick ... might help at the

margin, as he was seen as more market-friendly than most

alternatives," said Rob Wood, chief UK economist at Pantheon

Macro.

Britain's benchmark 10-year gilt yield was down

1 bp at 5.027%. Bond yields move inversely with prices.