(Adds comment in paragraphs 7-8, updates prices at 2:40 p.m. ET

(1840 GMT)

By Herbert Lash

NEW YORK, April 12 (Reuters) - Treasury prices rose on

Friday, pushing yields lower as Middle East tensions spurred

safe-haven buying and as hot inflation readings earlier this

week forced investors to sharply readjust their outlook for

Federal Reserve interest rate cuts.

Boston Fed President Susan Collins said she's eyeing two

rate cuts this year, adding her voice to other Fed officials who

have recently pushed back on market views for a quick series of

cuts and an easing of monetary policy.

Collins' remarks followed a speech in which she said the

U.S. central bank is likely to cut its policy rate at some point

this year but that uncertainties and risks around inflation mean

the Fed needs to take its time before doing so.

Treasury buying also was spurred by dour results from

several large U.S. banks, including JPMorgan ( JPM ), the

biggest U.S. bank by assets, and Israeli fears of an imminent

attack by Iran or its proxies also played a part, analysts said.

"A lot of investors don't want to be holding risky assets

heading into the weekend, and there's a little bit of

disappointment on some of the bank earnings as well," said

Gennadiy Goldberg, head of U.S. rates strategy at TD Securities

in New York.

But the biggest catalyst was the hotter-than-expected report

on the consumer price index on Wednesday.

"This report has challenged a lot of the assumptions that

the market has had about the Fed cycle and what that means for

broader asset markets," said Brian Daingerfield, a macro

strategist at NatWest Markets in Stamford, Connecticut.

"What the CPI print has forced the market to reckon with is

this possibility that the Fed might be in a position to not cut

at all this year," he said. "You have this reset higher in

rates, this reset higher in expectations and this change in the

discussion around the Fed."

The two-year Treasury's yield surged past 5% on Thursday as

futures traders slashed bets on the number of Fed rate cuts to

two and pushed back the start of the easing cycle to September

from expectations of June.

Market bets on the Fed cutting its target rate in June fell

to 27.1%, down from 53.2% last week, according to the CME

Group's FedWatch Tool.

The yield on two-year Treasury notes, which

typically moves in step with interest rate expectations, slid

8.1 basis points to 4.8822%, while the yield on the benchmark

10-year Treasury note's yield fell 5.8 basis points

to 4.499%.

"Some investors are buying the dip, so to speak, and making

sure that they get in at these highly attractive levels,"

Goldberg said. "There's a lot of uncertainty as to what happens

next. A lot of investors are debating whether rate cuts are

still possible this year."

The difference in two- and 10-year Treasury yields, seen as

a recession harbinger when a shorter-duration yield is higher,

or inverted, than longer securities, was at -38.24 basis points

.

The yield on the 30-year bond fell 6 basis

points to 4.603%.