TEL AVIV, June 22 (Reuters) - Israeli stocks hit record

highs on Sunday after the U.S attacked Iran's nuclear sites in

strikes investors believe would likely prevent Tehran from

developing nuclear weapons anytime soon.

The broad Tel Aviv 125 index closed 1.8% higher,

extending gains to nearly 8% the past week, while the blue-chip

TA-35 gained 1.5%.

On the heels of Israeli strikes in Iran, shares rose

during all five sessions last week, gaining some 6%, as Israel

hit Iranian nuclear and military targets prior to Saturday's

surprise U.S. attacks.

"The destruction of Iran's key nuclear facilities by the

U.S. military is, of course, a positive development ... in terms

of improving the regional security environment and reducing

Iran's military and nuclear capabilities," said Mizrahi Tefahot

chief markets economist Ronen Menachem. "It's a game-changer."

Israel began its punishing attacks on Iranian nuclear

facilities, ballistic missile factories and military commanders

on June 13, which have been met with retaliatory Iranian strikes

against Israel.

U.S. President Donald Trump said he had "

obliterated

" Iran's main nuclear sites in strikes overnight with

massive bunker busting bombs, joining an Israeli assault in a

significant new escalation of conflict in the Middle East.

Tehran vowed to defend itself, and responded with a

volley of missiles at Israel that wounded scores of people and

destroyed buildings in Tel Aviv on Sunday.

Still, for more than a week, local markets have cheered

Israel's actions in Iran.

In addition to gains in shares, government bond prices

have risen, the shekel has appreciated and Israel's risk premium

has edged lower.

Bond prices increased as much as 0.2% on Sunday. The

shekel does not trade on Sunday but it has rallied from

3.61 per dollar on June 11 to 3.48 on Friday and is up some 1%

this month.

"Looking at the medium- to long-term - which is relevant

for many strategic investors - this could represent a genuine

opportunity, possibly related to the prospect of closer ties

between the Saudi and American axis," Menachem said.

"The question is whether and to what extent last week's

sharp market gains already priced it in. A plausible scenario

includes, at least in the initial response, further increases in

equities, corporate bonds, and government bonds."