LONDON, June 10 (Reuters) - Euro zone bond yields edged

lower on Wednesday as oil prices showed little reaction to the

U.S. and Iran trading attacks that analysts said appeared

limited.

Traders were also waiting for key U.S. inflation data later

in the day and the European Central Bank's interest rate

decision on Thursday, widely expected to deliver a hike.

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

the euro zone, fell less than one basis point to 3.049%.

The two-year yield, sensitive to ECB rate

expectations, also dipped less than one bp to 2.672%.

The two-year yield has risen around 14 bps this month as

strong U.S. jobs data boosted expectations for Federal Reserve

rate increases, lifting global yields in turn.

A stalling in U.S.-Iranian peace talks has kept oil prices

elevated, underpinning yields.

The U.S.-Iran ceasefire came under renewed strain on Tuesday

and Wednesday as the two sides exchanged fire after Iran downed

a U.S. helicopter over the Strait of Hormuz.

Yet oil prices remained subdued, with Brent crude

last down 0.5% to $90.97 a barrel.

"On the positive side, talks are still ongoing, and a U.S.

spokesperson stated that the traffic through the Strait of

Hormuz is picking up," said Mohit Kumar, chief European

economist at Jefferies.

"Oil prices were lower despite the rise in geopolitical

tensions."

U.S. consumer price index data later in the day could steer

global yields. CPI is expected to have risen 4.2% year-on-year

in May, from 3.8% in April, as the war pushed up energy costs.

The ECB is expected to raise rates by 25 bps on Thursday in

response to the inflation surge, with investors watching for

guidance beyond June.

Money markets on Wednesday were pricing in around 68 bps of

tightening this year, implying two rate hikes and roughly a 70%

chance of a third.