Updates at market close

By Khushi Malhotra

MUMBAI, May 4 (Reuters) - Indian government bonds seesawed on Monday, as traders turned cautious over escalating Middle East tensions and firmer oil following reports of missile attacks on a U.S. warship in the Strait of Hormuz, while state election results leant some support.

The benchmark 6.48% 2035 bond's IN064835G=CC yield ended at 7.0194%, barely changed from Thursday's close of 7.0148%.

During the day, it swung to a low of 6.9849%, with traders pointing to value-buying and optimism around Prime Minister Narendra Modi's BJP-led coalition's performance in state elections that could be a boost for reforms. It later hit a high of 7.0413% on rising oil before ending steady.

Oil prices surged after Iran's Fars news agency reported that two missiles hit a U.S. warship trying to enter the Strait of Hormuz, sparking concerns over a prolonged disruption on the vital oil transit route. A senior U.S. official, however, immediately denied the report, Axios reporter Barak Ravid said.

Brent crude LCOc1 was up more than 3% at $111.8 a barrel by 5:00 p.m. IST.

Traders said the rapid war-related headlines left the market struggling for direction.

"What worries the market is how this stubborn oil supply disruption and crude prices staying above $100 a barrel could filter through to India's inflation and growth outlook," a private-bank trader said.

While price and availability of oil and gas are the main focus...below-normal monsoons, after two years of good rains, may have a mixed impact on the economy, said Prateek Agrawal, chief executive at Motilal Oswal AMC.

Separately, traders were also on the lookout for the issuance of another 10-year note, with some traders expecting New Delhi to continue to supply the current benchmark 6.48% 2035 paper for one more week.

RATES

India's overnight index swap rates surged as war angst dampened sentiment. The rates rose by 5-5.5 basis points.

The one-year OIS rate INR1YMIBROIS=CC was at 6.055%, while the two-year swap rate INR2YMIBROIS=CC rose to 6.2950%. The five-year INR5YMIBROIS=CC OIS rate ended at 6.6675%.