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

inched higher on Tuesday, as Brent crude futures remained

elevated near $90 per barrel, threatening the inflation outlook

and strengthening the case for tighter policy from the European

Central Bank.

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 up 1.5 basis

points to 3.165%, its highest level in eight weeks.

"Bond markets remain at the mercy of oil prices," Hauke

Siemssen, rates strategist at Commerzbank, said.

Energy prices have been rising following tit-for-tat strikes

by the U.S. and Iran, with maritime traffic through the vital

Strait of Hormuz chokepoint effectively shut down.

Brent futures touched a five-week high on Monday while

benchmark Dutch wholesale gas prices rose to their

highest intraday level in four months on the same day, adding to

worries about inflation.

The European 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 45 basis

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

equivalent of about two quarter-point rate hikes.

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

to changes in ECB policy expectations, was up 0.5 bps at 2.781%

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