LONDON, May 8 (Reuters) - Euro zone government bonds

eased on Friday as investor wariness over renewed clashes

between the U.S. and Iran sent oil prices higher, although moves

were muted compared to volatile sessions earlier this week.

Benchmark 10-year German bund yields rose 2 basis points to

3.0187% in early trade.

Two-year Schatz yields rose 3 bps to 2.6024%, a

second day of rises having staged their biggest daily fall in a

month on Wednesday.

Brent oil prices - a main driver for broader financial

markets since the war started in late February - rose 0.6% to

$100.62 a barrel on Friday, also a modest swing compared to more

volatile sessions earlier this week.

UK gilts were in focus after British Prime Minister Keir

Starmer's Labour Party suffered heavy early losses in local

elections on Friday.

But UK 10-year gilts were largely unchanged at

4.948%, underperforming other major European rates.

"The bad result for Labour, I think, is priced in," said

Kallum Pickering, chief economist and deputy head of research at

Peel Hunt.

Bond investors meanwhile remain focused on inflation risk

amid higher energy prices, though major central banks including

the Federal Reserve, European Central Bank and Bank of England

opted to keep interest rates on hold last week.

"I think markets are priced too much towards interest rate

hikes and not enough towards central banks trying to hold

through this and then cut in Q4," said Peel Hunt's Pickering.

"There's much too much muscle memory from 2022 when the Russian

invasion of Ukraine caused the gas price to go up," Pickering

said, adding that the main risk is to output and employment.

ECB Executive Board member Isabel Schnabel - one of the bank's

top policymakers - warned on Thursday of the rising risk of

higher inflation in the wake of the Iran war and of the "quiet

erosion" of central bank independence at a difficult moment of

rising global debt.

Money markets show traders are attaching roughly a 57%

chance of no change at the ECB's next meeting in June, reversing

from last week when the majority were betting on a hike.

On Friday, German exports rose unexpectedly in March but

industrial output fell despite a forecast rise, official data

showed.