Updates at market open

By Khushi Malhotra

MUMBAI, June 11 (Reuters) - Demand for Indian government bonds faltered on Thursday as renewed U.S.-Iran strikes drove oil prices higher and raised concerns about the economic fallout for the world's third-largest oil importer.

The United States launched new strikes on multiple targets overnight in Iran, with President Donald Trump threatening even more attacks if no peace deal is secured.

Brent crude futures LCOc1 surged 1.6% to $94.55 in Asian trade. It has risen 30% since the war began on February 28.

The yield on the benchmark 6.94% 2036 bond IN069436G=CC steadied at 6.9430% by 10:15 a.m. IST after rising to 6.9551% earlier in the session. Yields move inversely to prices.

Foreign banks sold 43.76 billion rupees of Indian bonds on Thursday, their biggest one-day outflow since April 2.

India is increasingly counting the cost of the Iran war, which economists say will keep mounting if the deadlock between the U.S. and Iran remains unresolved and the blockage of oil supplies continues.

Consequently, the central bank sees inflation averaging 5.1% in the financial year and growth slipping to 6.6% from 7.7% in the previous year.

The Indian rupee slipped 0.43% to 95.6725 per dollar on Thursday. It has depreciated over 5% since February-end.

The government and the Reserve Bank of India have announced a slate of measures to boost foreign inflows to defend the rupee and strengthen India's external balances.

"Any long-term bets on Indian debt after the measures will depend on the actual flow of foreign funds... till then focus is on Brent," a private-bank trader said.

RATES

India's overnight index swap rates eased as traders received betting yields would soften over the medium term on foreign inflows.

The one-year swap INR1YMIBROIS=CC fell 2.5 bps to 6.03%, while the two-year rate INR2YMIBROIS=CC and the five-year rate INR5YMIBROIS=CC eased 1.25 bps each to 6.21% and 6.4550% respectively.