Euro zone bond yields dip as investors await Fed view on rates?

* Euro zone bond yields fall ahead of Fed decision

* Energy price surge and impact on inflation in focus

* ECB and Fed expected to maintain current monetary policies

By Amanda Cooper

LONDON, March 18 (Reuters) - Euro zone government bond yields fell for a third day on Wednesday, ahead of a Federal Reserve interest rate decision that could offer clues on how global policymakers view the impact of surging energy prices on longer-term inflation.

German 10-year Bund yields were last down 1.3 basis points at 2.888%, set for a third daily decline, their longest such stretch in close to a month.

Bund yields, a benchmark for the wider euro zone, have risen nearly 20 bps since the U.S.-Israeli war on Iran ignited a surge in energy prices that has prompted investors to consider the possibility that interest rates might soon rise, which damages the appeal of fixed income assets.

Two-year yields have risen by over 30 bps this month. They were last down 1 bp at 2.368%.

AWAITING WORD FROM POWELL

Oil prices have surged over 40% since the start of the war to above $100 a barrel, as marine traffic that carries roughly 20% of the world's daily energy supplies through a choke-point controlled by Iran has been mostly cut off.

The Fed is not expected to announce any changes to monetary policy, but what Chair Jerome Powell says about another possible energy shock could set the tone for the ECB, which meets on Thursday.

The ECB is also not expected to make any changes to policy. So traders will be looking for any sign from ECB President Christine Lagarde about how justified current market pricing is for two possible rate rises this year.

'AS DIFFICULT AS IT GETS'

"The current backdrop is about as difficult as it gets for strategists, investors, and central bankers. With commodity prices surging and global trade slowing, the risks of making mistakes are high," Kathy Jones, managing director and chief fixed income strategist at Charles Schwab said in a recent note.

"No one wants to see a long war, but the longer it lasts, the more damage to the global economy. The range of potential outcomes is widening," she said.

On the data front, a final read of harmonised euro zone inflation for February is due at 1000 GMT. Economists polled by Reuters expect the core rate, which excludes food, energy, alcohol and tobacco, to have risen by 2.4% last month, matching January's rise, while the headline rate is expected to have increased 1.9%, also in line with January.

Italian 10-year yields, which have risen 33 bps this month, were down 3.1 bps at 3.63%, while French 10-year yields were also down 3.2 bps at 3.528%.

(Reporting by Amanda Cooper; Editing by Bernadette Baum)