(Updates at market close)

By Khushi Malhotra

MUMBAI, June 18 (Reuters) - Indian government bonds extended

gains for a sixth straight session on Thursday as falling oil

prices outweighed pressure from the U.S. Federal Reserve's

hawkish outlook, pushing the benchmark 10-year yield near a more

than three-month low.

Oil prices fell again after the United States and Iran

released the text of an interim agreement aimed at ending the

war, raising expectations that the Strait of Hormuz could

reopen.

Brent crude futures fell 0.1% in Asian trade to

$78.50 per barrel. The contract is now only about $6 above

pre-war levels.

The yield on the benchmark 6.94% 2036 bond

fell 2.4 basis points to 6.8387% on Thursday, down over 10 basis

points in six sessions.

The bond rally showed investors were putting more weight on

lower oil prices than on the Fed's hawkish signal, with cheaper

crude improving India's inflation and fiscal outlook.

"Indian markets are responding positively to U.S.-Iran deal

prospects, which have led to a sharp drop in crude oil prices,

further aided by recent RBI measures to attract foreign flows,"

said Amit Modani, senior fixed income manager at Shriram AMC.

Indian bonds and the rupee had come under pressure in early

trade after the Fed delivered a surprise hawkish tilt in its

policy outlook, even as it kept rates unchanged. Nine of the 18

Fed policymakers pencilled in a rate hike, far more than

analysts expected.

Traders also pointed to foreign buying, which helped reverse

early losses. New Delhi's tax cuts and RBI reforms have drawn

overseas investors to Indian debt, with foreign investors

pouring more than $2.2 billion into government bonds this month.

RATES

India's overnight index swap rates showed caution, pricing

in the risk of a hawkish Fed and a fragile U.S.-Iran truce.

The one-year swap rate was at 5.89%, while

the two-year rate was at 6.0450%. The

five-year rate was at 6.3225%. The rates rose

1.25-2.75 bps on the day.