(Updates prices at 0450 GMT)

By Rae Wee

SINGAPORE, April 19 (Reuters) - A wave of risk aversion

swept over markets on Friday and sent investors chasing after

traditional safety assets such as the Swiss franc and the yen

following reports that Israel attacked Iran in an escalation of

conflict in the Middle East.

Three people familiar with the matter told Reuters that

Israel attacked Iran, days after Iran launched a retaliatory

drone strike on Israel. Iranian state media reported early on

Friday that the country's forces had destroyed drones.

Markets initially reacted sharply to the news, which sparked

a huge selloff in risk assets, caused oil and gold prices to

surge, and ignited a rally in U.S. Treasuries and safe-haven

currencies.

Some of those moves were later retraced as few details

emerged about the attack and an Iranian official told Reuters no

missile attack took place.

Still, the Swiss franc, a traditional

safe-haven currency, remained 0.35% higher on the day at 0.9089

per dollar, having rallied 1% earlier in the session. Moves in

the Swissie were more pronounced against the euro, with the

common currency last 0.4% lower at 0.96685 francs, after sliding

as much as 1.5% earlier.

The yen rose roughly 0.2% to 154.38 per dollar,

after having rallied more than 0.6% in a knee-jerk reaction to

reports of the attack.

"It's pretty obvious the market is nervous," said Moh Siong

Sim, a currency strategist at Bank of Singapore.

"I think markets are at this stage in a flight-to-safety

mode ... Right now, we're still in a situation where we know

something has happened. But we need to understand the degree of

retaliation," Sim said.

The risk-sensitive Australian and New Zealand dollars,

meanwhile, tumbled to five-month lows.

The Aussie was last 0.3% lower at $0.64015, while

the kiwi eased 0.31% to $0.58825.

Also reflecting investors' skittishness, the highly-volatile

bitcoin tumbled more than 5% to briefly slip below the

$60,000 level. It was last roughly 1.8% lower at $62,381.

"I think what's happening in the Middle East is making that

upward inflection point with global inflation all the more

real," said Damien Boey, chief macro strategist at Barrenjoey.

Investors are also grappling with the prospect of

higher-for-longer interest rates in the United States, owing to

an economy that's still running hot.

A slew of resilient U.S. economic data that has repeatedly

surpassed expectations, alongside sticky inflationary pressures,

has left traders scaling back bets of the pace and scale of

Federal Reserve rate cuts this year.

Rate expectations continue to be the main driver of broad

market moves especially for currencies, with the latest shift in

the U.S. rate outlook sparking a towering rally in the dollar.

That's caused Asian currencies, in particular, to come under

immense pressure, and finance chiefs in the United States, Japan

and South Korea this week issued a rare trilateral warning over

the two Asian nations' sliding currencies, raising the risk of a

potential joint intervention.

The Korean won languished on the weaker side of

the psychologically key 1,400 level on Friday and last stood at

1,382.90 per dollar.

"Given the recent developments, the prospect of a joint

Asian FX intervention is definitely rising. I'm not sure about

whether or not the U.S. will be involved in that intervention,

because ultimately, a stronger U.S. dollar will just help the

FOMC's inflation fight," said Carol Kong, a currency strategist

at Commonwealth Bank of Australia (CBA).

Bank of Japan (BOJ) Governor Kazuo Ueda said on Thursday the

central bank may raise interest rates again if the yen's

declines significantly push up inflation, highlighting the

impact currency moves may have on the timing of the next policy

shift.

Ueda's comments come ahead of the BOJ's monetary policy

meeting next week.

Elsewhere, sterling fell 0.14% to $1.2420, leaving

it on track to lose 0.2% for the week. The euro eased

0.07% to $1.06355 and was set to clock a marginal weekly loss.

While expectations of a first Fed rate cut have been pushed

back to later this year, traders expect the European Central

Bank to begin its rate easing cycle in June, which will likely

keep the common currency weak for some time.

"Once the ECB starts cutting, it'll be apparent that global

central banks will face divergent monetary policy easing cycles,

and that will just exacerbate the strength in the dollar against

the euro and other major currencies," said CBA's Kong.

Futures now show just about 40 basis points (bps) worth of

cuts priced in for the Fed this year - a significant pullback

from the 160 bps of easing expected at the start of the year.

Fed policymakers have similarly pushed back against market

bets for rate cuts beginning as early as June, and Chair Jerome

Powell early this week said monetary policy needs to be

restrictive for longer.

Against a basket of currencies, the greenback rose

0.03% to 106.19, hovering near a more than five-month high of

106.51.