LONDON, August 5 (Reuters) - Euro zone bond yields fell for

a third consecutive day on Wednesday as falling oil prices,

driven by optimism over a potential U.S.-Iran deal to reopen the

Strait of Hormuz, eased inflation concerns.

U.S. President Donald Trump said that the U.S. and Iran were

having "very good discussions", fuelling expectations of an end

to the five-month conflict that has severely disrupted energy

supplies from the Middle East.

Growing confidence that a deal can be reached has pushed Brent

futures below $79 per barrel to their lowest in over

three weeks.

"Bond markets are focused on prospects for a deal with Iran and

reopening of the Strait of Hormuz," said Hauke Siemssen, a rates

strategist at Commerzbank.

"The bullish backdrop looks set to remain intact today."

Germany's 10-year yield, the euro zone benchmark,

was last down 2.5 basis points (bps) at 3.09%, its lowest since

July 15. Bond yields move inversely with prices.

LESS TIGHTENING?

Falling energy prices have softened worries about higher

inflation and a slowdown in growth, and helped reduce

expectations for further policy tightening from the European

Central Bank.

Futures markets are now pricing in just 35 bps of tightening

from the ECB by the end of the year, implying one more

quarter-point hike and around a 40% chance of a second.

On Friday, investors had been pricing in around 44 bps of

tightening this year.

Germany's two-year yield, which is sensitive to

changes in ECB policy expectations, was last down 2 bps at

2.696%.

The ECB in June became the first major central bank to tighten

policy since the outbreak of the war but kept interest rates on

hold last month.

(Reporting by Samuel Indyk; Editing by Muralikumar

Anantharaman)