LONDON, May 4 (Reuters) - Borrowing costs across the

euro zone nudged up on Monday, with markets wary that the

European Central Bank could soon hike rates to contain inflation

even as oil prices nudged down from recent highs.

Overall trading conditions were thin with UK markets closed

for a public holiday.

Germany's benchmark 10-year Bund yield was around 2 basis

points (bps) higher at 3.05%, while Italian peers

rose about the same amount to 3.88%.

Rate-sensitive two-year bond yields were up around 2 bps

across the bloc .

While oil prices were holding below last week's four-year

peaks, they remain above $100 per barrel and the Strait of

Hormuz remains closed due to the U.S.-Israeli war with Iran -

prolonging the impact of a global energy shock.

Money markets price a roughly 80% chance of a quarter-point

hike at the ECB's June meeting and fully price in at least two

rate increases this year.

With markets across the euro area closed on Friday for the

May Day holiday, analysts said traders were reacting to ECB

commentary since Thursday's decision to leave rates unchanged.

The ECB may need to tighten policy, perhaps as soon as June,

policymakers said on Friday, warning that the inflation outlook

is deteriorating and the risk is rising that high price growth

gets entrenched.

The central bank on Thursday debated hiking rates and

signalled, in both on- and off-the-record comments, that higher

rates would remain on the agenda as it fears an energy-induced

inflation spike could persist beyond a one-off impact.

"ECB sources suggested almost a tightening bias and possibly

a couple of rate hikes if there is no relief on energy prices,"

said Commerzbank rates strategist Rainer Guntermann.

"However, new tariff threats for European carmakers are

likely to weigh on risk sentiment and growth prospects, thereby

complicating the ECB's potential response in June."

U.S. President Donald Trump said on Friday he would increase

tariffs on cars and trucks from the European Union to 25% this

week from the previously agreed 15%, saying the bloc had not

complied with its trade deal with Washington.

On Monday, Bank of France Governor Francois Villeroy de

Galhau said he expected the inflation rate to return to 2% in

2027-2028 after a spike this year triggered by higher energy

prices.

(Reporting by Dhara Ranasinghe; Editing by Emelia

Sithole-Matarise)