* Treasuries yields fall as oil prices retreat, equities

rebound

* Iran conflict's impact on bond market remains uncertain

* Fed rate cut expectations reduced amid inflation

concerns

* US one-year inflation swaps dip, but still elevated

(Adds new comment, U.S. data, updates yields)

By Gertrude Chavez-Dreyfuss

NEW YORK, March 16 (Reuters) - U.S. Treasuries rebounded

on Monday, with risk appetite improving, as oil prices retreated

and stock markets recovered, although gains were tempered as

bond investors continued to assess how long the war in Iran may

last.

The benchmark 10-year yield, which falls when

prices rise, slid 6.3 basis points (bps) to 4.222% after surging

for five straight days. It was on track for its largest daily

decline since mid-February. U.S. two-year yields, which reflect

interest rate expectations, were also down, dipping 5.4 bps to

3.679%. It was set for its biggest one-day fall since late

February.

A sharp rally in oil prices - and the prospect of broader

global inflation pressures - drove the surge in yields across

the curve last week. U.S. crude futures have spiked by

more than 40% since the beginning of March, on pace for the

biggest monthly gain since May 2020.

Market players said risk appetite was slightly higher

compared to last week as there have been discussions about

ending the conflict, or some resolution on how to end it.

"The trend that we saw last week is just reversing a little

bit as the market is just trying to figure out, where do we go

from here, almost like a little bit of a recalibration," said

Jim Barnes, director of fixed income at Bryn Mawr Trust in

Berwyn, Pennsylvania.

U.S. officials responding to economic uncertainty over high

oil prices predicted on Sunday that the U.S.-Israeli war on Iran

would end within weeks and that a drop in energy costs would

follow, despite Iran's assertion that it remains "stable and

strong" and ready to defend itself.

President Donald Trump also called for a coalition of

nations to help reopen the vital Strait of Hormuz and warned

that the NATO alliance faces a "very bad" future if its members

fail to come to Washington's aid.

"The bond market is not baking in the permanent impairment

of the Strait of Hormuz being shut off for a prolonged period or

a permanent hit to oil infrastructure," said Ali Hassan,

portfolio manager at Thornburg Investment Management in Santa

Fe, New Mexico.

He said, "There is no reason in my mind why the market is so

optimistic that there is an easy off-ramp to the conflict."

U.S. 30-year yields also slid, down 4.6 bps at 4.862%

US30YT=RR, on pace for the biggest daily pullback since February

12.

FLATTER YIELD CURVE

The yield curve was flatter on the day, with the gap between

two-year and 10-year yields narrowing to 54.20 bps US2US10=TWEB

from 55.8 bps late on Friday.

The curve showed a bull flattening pattern in which long

term interest rates are falling faster than short-dated ones.

The move largely reflected expectations that the Fed may not cut

interest rates as aggressively as previously thought due to the

inflationary impact of the recent surge in oil prices.

With inflation rearing its ugly head again, U.S. rate

futures have priced in just one Fed cut this year, or about 24

bps, from 55 bps before the war, according to LSEG estimates.

The Fed is set to meet this week, with investors keen to

hear the U.S. central bank's outlook on the economy and interest

rates in the midst of the ongoing conflict.

Inflation swaps, a gauge of the outlook for future consumer

prices, saw a spike to a nearly five-month peak of roughly 3%

in one-year maturities last week. This suggested

that investors believe that the consumer price index will

average about 3% over the next 12 months, higher than the 2.4%

year-on-year CPI reading for February.

On Monday, that inflation measure slipped to 2.9% with the

drop in oil prices.

Against the backdrop, U.S. economic data remained solid,

with Treasury yields earlier extending their rise.

U.S. factory production increased modestly in February as

manufacturing remained constrained by tariffs on imports and the

conflict in the Middle East could raise operating costs.

Manufacturing output rose 0.2% last month after an upwardly

revised 0.8% gain in January, the Federal Reserve said.

Other data on Monday showed sentiment among single-family

homebuilders nudging up in March. The National Association of

Home Builders/Wells Fargo Housing Market index increased one

point to 38 in March, remaining below the 50 break-even point

for 23 straight months.

The slight improvement in sentiment likely reflected lower

mortgage rates at the start of the year after Trump ordered

government-backed mortgage firms Fannie Mae and Freddie Mac to

expand purchases of mortgage-backed securities.