Updates prices

LONDON, July 8 (Reuters) - Euro zone bond yields rose sharply on Wednesday to their highest levels in a month after U.S. President Donald Trump said he thought the interim agreement to end the war with Iran was over, causing oil prices to jump.

Germany's 10-year bond yield DE10YT=RR rose 8.5 basis points to 3.072%, its highest since June 11, as traders added to their bets on further European Central Bank rate hikes this year. Yields move inversely to prices.

Asked before a NATO summit in Turkey whether the memorandum of understanding agreed last month to end the war was over, Trump said: "It's a very interesting question. To me, I think it's over. I don't want to deal with them."

The comments came after Iran's Revolutionary Guards said they targeted U.S. military sites in Bahrain and Kuwait on Wednesday after the U.S. launched a wave of strikes on Iran in response to attacks on tankers in the Strait of Hormuz. The U.S. also revoked a licence allowing Iran to sell oil.

Energy prices jumped, with international benchmark Brent crude LCOc1 up 7% to $79.20 a barrel, the highest in two weeks.

Oil prices have fallen sharply — from as high as $126 a barrel in late April — since the U.S. and Iran reached a deal to end their war in mid-June, which started further talks on a range of issues, such as sanctions, and allowed energy to start flowing through the key Strait of Hormuz.

Traders added to their bets on ECB rate hikes on Wednesday, with money markets last pointing to 36 bps of further monetary tightening by the end of the year, up from 25 bps on Tuesday.

Germany's 2-year bond yield DE2YT=RR, which is sensitive to ECB rate expectations, rose 9 bps on Wednesday to 2.682%, also its highest since June 11.

"It's a big wake-up call for the markets because the expectation was that, following the MOU, we were likely to start to see the flow of oil coming back into the markets," said Aneeka Gupta, a director of macroeconomic research at WisdomTree.

"What has changed materially is the (Iranian) oil waiver is gone," she said. "It's removed a very key incentive for Iranian compliance.”

Gupta added that the so-called TACO trade — "Trump always chickens out" — was still at play and that the U.S. president could still reverse his view on the MOU, especially as he was likely to want U.S. fuel prices lower ahead of the midterm elections in November.

Italy and France's 10-year bond yields were both up 12 bps on Wednesday after Trump's comments IT10YT=RR, FR10YT=RR.