Updates for European afternoon trading

LONDON, May 28 (Reuters) - Euro zone bond yields fell on Thursday after Axios reported that the U.S. and Iran had reached an agreement for a 60-day ceasefire that would see an end to the blockade of the Strait of Hormuz and keep traffic through the waterway unrestricted.

Axios reported U.S. President Donald Trump was yet to give the agreement his final approval, but that a deal would mark a significant diplomatic breakthrough a day after the United States and Iran traded missile strikes.

The effective closure of the Strait since the outbreak of the conflict has severely impacted global energy supplies, pushing up oil prices and bringing higher inflation across the globe.

Euro zone bond yields have jumped since the war began as traders bet the European Central Bank would have to carry out as much as 75 bps of hikes - three full increases - to tackle inflation stemming from rising oil prices due to the Iran war.

Oil prices LCOc1 trimmed an earlier rise but were still up slightly on the day.

Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone, fell 2 basis points to 2.968%. It had earlier been higher on the day after the U.S. and Iran traded missile strikes.

The report has provided markets with "cautious optimism", according to Axel Rudolph, chief technical analyst at IG.

"Investor optimism remains tempered by uncertainty over whether President Trump will give the deal his final approval," Rudolph said.

ECB RATE HIKE?

Money market traders slightly trimmed their expectations for rate hikes from the ECB, although they were still pricing in about a 90% chance of a hike next month.

Investors were last pricing in around 55 bps of tightening from the ECB this year, from around 60 bps before the news.

The two-year German bond yield DE2YT=RR, which is sensitive to ECB interest-rate expectations, fell 2.5 bps to 2.551%, having been up about 1 bp earlier in the day.

The decision by the ECB to keep rates unchanged in April was a close call for some policymakers as persistently high inflation made it difficult to look through the energy-driven price shock, the accounts of their latest meeting showed.

Consumer price inflation jumped to 3% last month. Data scheduled for release next Tuesday is expected to show an even bigger rise in consumer prices.

Soft U.S. economic data also helped bonds on Thursday, pulling yields down.

Estimated U.S. growth for the first quarter was revised lower on Thursday, while a closely watched measure of price pressures came in largely in line with expectations.

The benchmark U.S. 10-year Treasury yield US10YT=RR fell 2 bps at 4.461%.