LONDON, April 7 (Reuters) - Euro zone bond yields ticked

higher in a bumpy session on Tuesday as uncertainty over the

Iran war persisted and a U.S.-imposed deadline for a deal on the

conflict loomed large.

Iran showed no sign of agreeing to U.S. President Donald Trump's

demand that it open the Strait of Hormuz by the end of Tuesday

or suffer massive attacks on its civilian infrastructure.

"It seems to be that we are at a pivotal moment now," Philip

Shaw, chief economist at Investec, said.

"The range of outturns are either you get an agreed ceasefire at

least for a while or you see a huge escalation in the conflict,

and markets are genuinely unsure which way to turn. Therefore

we're all waiting for later on tonight or any news of

negotiations through the course of the day."

The yield on the benchmark German 10-year Bund

was last up by 3.3 basis points to 3.0294%.

Government bonds worldwide came under pressure soon after

the war started on February 28, with yields jumping higher as

inflation expectations surged on spiking energy prices. Euro

zone bond yields broadly recorded their first weekly decline

since the start of the conflict last week as hopes of potential

de-escalation emerged.

Markets have been reacting strongly to any shifts relating

to the war in the Middle East as they have been trying to

navigate the conflict's potential impact on inflation, economic

growth and central bank interest rates.

Belgian central bank chief Pierre Wunsch told the Wall Street

Journal in remarks published on Tuesday that the European

Central Bank may need to raise interest rates if the war drags

on, and a move as early as April 30 cannot be ruled out.

Markets were last pricing in at least two interest rate

hikes, with a strong chance of a third, from the ECB by the end

of the year, broadly in line with expectations prior to the long

weekend. Before the Iran war broke out, markets had seen a small

chance of a rate cut from the ECB this year.

German 2-year yields, which are more sensitive to

rate expectations, were last up 4.4 bps to 2.6682%.

The yield on Italy's 10-year government bond was

last up 3.3 bps to 3.9023%, with the gap between the German and

Italian 10-year bond yields last standing at

around 86 bps.