March 6 (Reuters) - Concerns that the Middle East

conflict could fuel inflation have driven euro zone government

bond yields towards their biggest weekly rise since March last

year, when Germany announced plans for a major increase in

fiscal spending.

Germany's 10-year government bond yield, the

bloc's benchmark, dropped one basis point to 2.84% on Friday. It

reached 2.853% on Thursday, its highest since February 9, and is

on track for a 19-bp weekly rise.

Money markets are pricing in a 60% chance of a European

Central Bank rate hike in December. They

also imply a 90% chance of a rate rise by June 2027.

Germany's two-year yields, which are more

sensitive to policy expectations, were down 2 bps at 2.24%. They

hit 2.259% on Thursday, their highest since March 6.

Three ECB policymakers warned on Thursday that euro zone

inflation would likely rise, and growth weaken, if the war in

Iran were to drag on and draw in more countries.

There is no "preset pace for our monetary policy stance,"

President Christine Lagarde said on Thursday.

Some economists remained cautious about expecting a

tightening move by the ECB.

"Traditionally, oil price shocks tend to

be stagflationary for the euro zone, which often motivated the

ECB to simply look through oil-driven inflation surges," said

Carsten Brzeski, head of macro strategy at ING.

"However, the risk of such an approach is falling behind the

curve, as could be witnessed in 2022," he added.

Italy's 10-year government bond yields rose one

bp to 3.58%. The gap versus Bunds stood at 73 bps. It hit 53.50

in mid-January, its lowest since August 2008.