Euro zone yields steady as markets weigh Iran deal hopes, mixed inflation data

* Inflation data mixed in major euro zone economies

* ECB ​seen likely to ⁠hike interest rates in June, but markets doubt further ​tightening this year

* Iran deal hopes, oil prices driving rate expectations

LONDON, May 29 (Reuters) - Euro zone bond yields steadied on Friday as investors assessed mixed inflation ​figures from ‌the bloc's major economies while awaiting more details of a potential deal to reopen the Strait of Hormuz and extend the U.S.-Iran ceasefire. Germany's 10-year bond ⁠yield, the benchmark for the euro zone, was steady at 2.96%. It has ⁠fallen 7 basis points this month, as investors grew ​more optimistic about a potential Iran peace deal, in turn bringing oil prices down and tempering bets on European Central Bank interest rate hikes. The two-year German bond yield - more sensitive to ECB interest rate expectations - was a whisker higher at 2.56%. Yields move inversely to prices. Inflation in ​the euro zone's ‌four largest economies hovered above the ECB's 2% target for a third straight month in May, preliminary data showed on Friday, as a rise in fuel costs triggered by the war began to feed through to other prices. Country-specific figures were mixed. While German figures were cooler than expected, the Spanish reading was hotter than expected, as was Italy's. In France, inflation came in below the forecast but crept ​higher on a month-over-month basis. That data did little to change expectations of an ECB rate hike next month, which money markets see ‌as all but certain. However, they have turned more sceptical about policy tightening later in the year, pricing a second hike by October, but only seeing a small chance of a third ‌move by the end of the year.

CHANGING ATTITUDES AMONG EURO ZONE CONSUMERS Rate expectations are swinging on headlines from the Gulf and resulting moves in oil prices.

Iran said on Friday it was looking for actions, not words from the U.S. after Reuters reported, citing sources, ​that President Donald Trump was weighing an initial agreement to extend the ceasefire and open the strait. "In terms of market reactions, if a deal is agreed ‌upon, we should see another leg higher in risky assets and lower in rates. However, positioning suggests that the rates market should see a greater reaction than equities," Mohit Kumar, chief European economist at Jefferies, wrote in a note. "For the ECB, we can see one hike (in June), ⁠simply because they have ⁠to justify their inflation credibility," Kumar said.

Underscoring that idea, ECB research on Friday ‌showed euro zone consumers, already scarred by the Ukraine war, have changed their attitudes more quicklyin response to the Iran conflict, meaning the economic hit could be deeper and ​faster. "Today's inflation data are further cementing ​the case for a rate hike," Rabobank analysts said in a note, as they also flagged ‌a pick-up in consumers' medium-term inflation expectations.

"However, we still believe that the current backdrop is less conducive to broader and protracted inflationary pressures than 2021-2022."

Separate data, however, showed France's economy shrank slightly in the first quarter, missing the preliminary reading of no change in the euro zone's second-largest economy. (Reporting by Lucy Raitano; Editing by Gus Trompiz, Joe Bavier and Paul Simao)