(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.