MUMBAI, April 15 (Reuters) - The Indian rupee and

government bonds will be guided this week by the fallout of the

Middle East tensions on oil prices, risk assets and safe havens

such as U.S. Treasuries and the dollar.

Over the weekend, Iran's first direct attack on Israel

fueled fears of a wider conflict. Israeli Prime Minister

Benjamin Netanyahu vowed on Sunday his country would achieve

victory after the military said it shot down almost all drones

and missiles launched by Iran.

The response in Asia to rising worries around the Middle

East situation has been measured so far. Oil prices were

marginally lower, the safe haven dollar dipped and U.S. equity

futures inched up, while U.S. Treasury yields rose.

"Oil will be the key moving part (for rupee and India

government bond yields) and in that, the important question will

be whether Israel will retaliate," a treasury official at a bank

said.

"Markets it looks seems to think that Israel will not, based

on the reaction so far."

The rupee closed at 83.4125 against the U.S. dollar

on Friday, dipping 0.1% for the week. The 10-year Indian

government bond yield ended at 7.1794%, up six

basis points through the week.

A higher-than-expected increase in U.S. consumer inflation

weighed on the rupee and pushed government bond yields higher

last week.

The rupee "no doubt" is "at serious risk of seeing a big

fall" and the Reserve Bank of India will "have to participate",

the treasury official said.

The rupee is likely to face downside pressure but

expectations of intervention by the RBI a will ensure gradual

depreciation, said Anindya Banerjee, head of foreign exchange

research at Kotak Securities.

Meanwhile, traders expect India's 10-year yield to move in

the 7.13%-7.25% range this week.

"The move in the 10-year U.S. yield, along with oil prices,

will remain the most critical factor for Indian bonds over the

near term," said Abhishek Upadhyay, a senior economist at ICICI

Securities Primary Dealership.

KEY EVENTS:

** India March WPI inflation - April 15, Monday (12:00 p.m.

IST) (Reuters poll 0.51% on-year)

** U.S. March retail sales - April 15, Monday (6:00 p.m.

IST)

** U.S. March housing starts - April 16, Tuesday (6:00 p.m.

IST)

** U.S. March industrial production - April 16, Tuesday

(6:45 p.m. IST)

** U.S. initial weekly jobless claims week to April 8 -

April 18, Thursday (6:00 p.m. IST)

** U.S. April Philly Fed Business Index - April 18, Thursday

(6:00 p.m. IST)

** U.S. March existing home sales - April 18, Thursday (7:30

p.m. IST)

** Minutes of India's Monetary Policy Committee's April

policy decision - April 19, Friday (5:00 p.m. IST)

(Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by

Savio D'Souza and Varun H K)