TREASURIES-US bonds rally on reports Israel strikes Iran

(Updates prices)

SINGAPORE, April 19 (Reuters) - U.S. Treasuries rallied sharply as news reports of an Israeli attack on Iran sent investors into safe assets on Friday.

Benchmark 10-year yields fell as far as 15 basis points to 4.4960%, before steadying around 4.5653% as there was little immediate indication of significant damage.

Two-year yields dipped beneath 4.9% and were last down four bps to 4.9471%. Yields fall when bond prices rise and Treasury bonds are seen as safe because investors trust the U.S. government will honour the coupon and repay the principal.

The moves still leave yields higher for the week, but the heavy selloff in bond markets driven by discomfort about persistent inflation has softened.

Israel launched an attack on Iranian soil, people familiar with the situation told Reuters. Iranian state TV said three drones were destroyed in the night sky over Isfahan.

"It's a haven trade," said Mizuho's chief economist for Asia outside Japan, Vishnu Varathan in Singapore.

"The Treasury move can also be explained because it's not just tactical, it's fear and fear tends to have an impact on growth and demand."

Oil, gold and the dollar rose sharply in other markets on news of the attack, before coming off highs. Ten-year Japanese government bond yields dropped 3.5 bps in their sharpest fall since February. (Reporting by Tom Westbrook Editing by Shri Navaratnam)