Euro zone yields little changed, Middle East, Fed meeting in focus

June 16 (Reuters) - Euro zone government bond yields struggled for direction on Monday as investors assessed the impact of the Middle East conflict on growth and inflation while awaiting the U.S. Federal Reserve's policy meeting later this week.

Iranian missiles struck Israel overnight, part of a wave of retaliatory attacks by Tehran for Israel's pre-emptive strikes targeting its nuclear and ballistic missile programmes last week.

The conflict has fuelled concerns among world leaders at this week's G7 meeting that the battle between the two old foes could lead to a broader regional conflict.

Analysts said a rise in oil prices will fuel inflation, but there are also downside risks for the economy.

Brent crude futures were volatile on Monday, following a 7% surge on Friday.

German 10-year government bond yields DE10YT=RR were flat at 2.54% to 2.53%, having marked 2.422% on Friday, the lowest since March 3. Yields on the two-year Schatz DE2YT=RR were down 0.5 basis points (bps) at 1.85%.

The market pricing of the European Central Bank depo rate by December was at 1.75% EURESTECBM4X5=ICAP, at the same levels seen after the ECB policy meeting in early June.

Monetary policy decisions from the Bank of Japan and the Bank of England are also top of the agenda this week.

The Fed is expected to hold interest rates steady, with investors focused on new central bank projections.

Italy’s 10-year government bond yield IT10YT=RR was down one bp at 3.49%, with the spread between Italian and German yields at 92 bps. It hit 84.20 bps last week, its tightest since March 2015.