(Updates after morning trading)

LONDON, May 21 (Reuters) - Euro zone government bond

yields rose on Wednesday as higher oil prices added further

pressure to longer-dated bonds, already struggling globally due

to worries about countries' fiscal positions, particularly the

U.S.

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

rose 6 basis points to 2.66%, while Italy's 10-year yield

climbed nearly 9 basis points to 3.7%.

Partly responsible for the move was oil, as Brent

futures rose more than 1% on Wednesday after reports

that Israel could be preparing to strike Iranian nuclear

facilities.

This, combined with above expectations British inflation

data were "helping to hoist bond yields across the curve", said

Kenneth Broux, head of corporate research FX and rates at

Societe Generale, said in a note.

Britain's annual inflation

rate hit 3.5% in April, its highest reading since January

2024.

Even with inflation near the European Central Bank's 2%

target,

rate setters

are still keeping a wary eye on it when setting policy.

Markets expect the ECB to cut its key rate to 1.75% by

the end of this year; those expectations had been nearer 1.5%

last month at the height of worries about the global economic

hit from tariffs.

Yields in Europe have been moving higher this week,

dragged along by U.S. Treasury yields, which have been rising on

concerns about the U.S. fiscal position as a

tax cutting bill

works its way through Congress.

The U.S. 10-year yield was last up nearly 6 bps at

4.54%.

In addition, longer-dated bond yields have been rising

more than shorter-dated ones as investors demand a greater

premium to hold longer-dated debt.

That has caused yield curves to steepen, in market

parlance, and the German two-10 yield curve was at its steepest

in over a month, with the 10-year yield 79 bps higher than the

two year.

If energy prices stay permanently higher, "it is

potentially another stone in the sticky inflation and bear

steepening pond", Broux said.

Curves "bear steepen" when the gap between longer and

shorter dated yields increases because longer-dated yields are

rising.

Japanese super-long yields have also moved sharply

higher this week, and the 30- and 40-year yields hit new

all-time peaks on Wednesday.

Trading Wednesday was also complicated by a

Bloomberg Terminal outage

which disrupted numerous government bond sales according to

several European debt management offices.