(Updates with latest prices )

* STOXX 600 rises on day, set for worst month since 2022

* Euro zone inflation rises on oil shock, data shows

* Government bond yields steady

By Elizabeth Howcroft

PARIS, March 31 (Reuters) - European shares eked out

small gains in morning trading on Tuesday but were still on

track for their worst month since 2022, while oil prices were

set for a record monthly rise, as traders came to the end of a

tumultuous March dominated by the Iran war.

Iran attacked a fully-loaded oil tanker off Dubai early on

Tuesday after President Donald Trump warned the United States

would obliterate Iran's energy plants and oil wells if it does

not open the Strait of Hormuz. Still, markets got a lift from a

Wall Street Journal report that Trump had told aides he is

willing to end the military campaign even if the strait remains

largely closed.

The war, which began with U.S. and Israel launching coordinated

strikes against Iran on February 28, has sent shockwaves across

global markets, with oil prices surging while bonds, gold, and

safe haven currencies have fallen.

At 0958 GMT, Europe's STOXX 600 was up 0.7% on the day

, as was the FTSE 100. However, the STOXX 600

remained on track for its steepest monthly loss since 2022, a

break from its previous eight months in a row of gains.

Equity markets are "taking the U.S. administration at their

word, that they're going to end the war," said Colin Graham,

head of multi-asset strategies at Dutch asset manager Robeco.

"They haven't moved to day-two where the Strait of Hormuz

could still be closed."

As prices were moved by contradictory reports about the U.S.

plans, interpreting Tuesday's moves was complicated by it being

the last day of the month and quarter, when large asset managers

typically rebalance their portfolios back to their target

allocations.

INFLATION AND GROWTH FEARS

Brent crude futures were up 1.5% on the day at $114.44 a

barrel, on track for their biggest monthly gain on

record, and U.S. West Texas Intermediate futures were up 0.5% at

$103.36.

Oil prices have surged as a result of the war, due to Iran's

effective closure of the Strait of Hormuz, which carries about a

fifth of the world's oil supply.

The oil shock meant euro zone inflation soared past the European

Central Bank's 2% target in March, data showed.

Euro zone government bond yields were steady, with the

German 10-year yield at 3.0324%.

Government bond yields had retreated from multi-year highs on

Monday after rising sharply this month because of the conflict,

with investors appearing to refocus on the risk of weaker growth

stemming from the energy shock.

The European Union's energy chief has told governments to

prepare for "prolonged disruption" to energy markets as a result

of the war, ahead of an emergency meeting on Tuesday.

"If the Strait of Hormuz remains closed for the next week or

two, then I think we'll be raising our probabilities of

recession in our scenario analysis," Robeco's Graham said,

adding that this was not yet the case.

Developed market currencies were broadly steady, but the

dollar was still on track for its biggest monthly gain since

July, having held up as a safe-haven currency. The euro

was at $1.1468, on track for its worst month since July

.

Japan's finance minister said that the government was ready to

respond "on all fronts" against foreign exchange volatility,

underscoring Tokyo's alarm over the yen's recent slide.

Gold was up 1.1%, at $4,561.05, on track for its biggest

monthly drop since 2008. Goldman Sachs said it continued to

expect gold prices will reach $5,400 per troy ounce by end-2026.