LONDON, July 15 (Reuters) - Euro zone bond yields edged

higher on Wednesday as oil prices climbed, a day after swinging

dramatically over the re-escalation of conflict in the Middle

East and the release of U.S. inflation data.

Germany's 2-year bond yield was last up 3 basis

points at 2.7552%. Yields move inversely to prices.

The yield, which is sensitive to central bank rate

expectations, rose as much as 8 bps on Tuesday to a two-year

high as oil prices jumped on the U.S.-Iran conflict, before

falling sharply after U.S. inflation data came in weaker than

expected and ending roughly flat on the day.

The framework deal to end the war has all but collapsed,

with the U.S. and Iran continuing to trade strikes on Tuesday

and Wednesday after Iran said it had closed the Strait of Hormuz

and the U.S. reimposed a naval blockade of Iranian ports.

Iran's Islamic Revolutionary Guard Corps has threatened to

close other export corridors, Iranian media reported, in a

possible sign it could use its Houthi allies in Yemen to shut

the Bab el-Mandeb gateway to the Red Sea, putting two of the

world's most vital energy arteries at risk.

Oil prices rose on Wednesday, with Brent crude up

0.8% at $85.40 a barrel.

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

the euro zone, rose 3 bps to 3.099%.

A jump in oil prices over the last week has seen traders

sharply raise their bets on ECB rate hikes this year, but they

wound them back in somewhat after the U.S. CPI inflation data.

Money markets were last pricing in 40 bps of further ECB

tightening this year, up from 30 bps a week ago but down from a

peak of 48 bps on Tuesday.

Data on Tuesday showed headline U.S. inflation slowed more

than expected to 3.5% year-on-year in June, down from 4.2% in

May, although the fall was largely due to a drop in energy

prices which is now under threat.