By Sudeshna Ghoshal
Sept 11 (Reuters) - European stocks edged higher on Friday but were set for their biggest weekly decline in about two months as elevated bond yields and fears about aggressive interest rate hikes tempered sentiment ahead of key U.S. inflation data.
The pan-European STOXX 600 was up 0.4% at 638.63 points by 0837 GMT, while other major regional bourses also traded higher.
European stocks closed at a two-month low on Thursday after the European Central Bank raised interest rates and
warned of higher inflation as energy prices soar in the wake of a prolonged Middle East conflict.
Escalating U.S.-Iran attacks since late August on military, shipping and energy assets across the Middle East have pushed oil prices back above $100 a barrel, reviving concerns about inflation in the fuel-dependent euro zone and complicating the ECB's fight against price pressures.[O/R]
Government bond yields across the globe have surged as traders expect that major central banks may need to keep interest rates higher for longer.
The U.S. 10-year Treasury yield, a benchmark for global borrowing costs, hovered below the closely watched 5% level. The German 10-year yield stayed near multi-decade highs.
"The main drivers really lie from the U.S. and with oil prices," said Chris Beauchamp, chief market analyst at IG.
"It's a sort of cocktail of worries that's really exploded into markets. September has been one of the worst months of the year for markets anyway, and it's a midterm year."
Investor attention will be on U.S. Consumer Price Index data later in the day, which could provide fresh signals on the Federal Reserve's interest rate path ahead of a monetary policy meeting next week.
Traders now see a 67% chance of a Fed rate hike at its next meeting, according to the CME Fedwatch tool.
Among individual movers, Italian semiconductor testing company Technoprobe emerged as the top gainer on the STOXX 600, advancing 3.6% as its customer TSMC posted strong August revenue.
On the flip side, FlatexDEGIRO shed 4.9% after the German online broker said Hans-Hermann Lotter resigned as chairman of the supervisory board with immediate effect.
(Reporting by Sudeshna Ghoshal in Bengaluru; Editing by Nivedita Bhattacharjee and Sonia Cheema)
