By Dharamraj Dhutia

MUMBAI, May 25 (Reuters) - Indian government bonds are set to start the new week with gains as Brent crude oil prices fall below $100 per barrel on optimism that the U.S. and Iran are moving closer towards a peace deal.

The benchmark 6.48% 2035 bond yield IN064835G=CC is expected to move in the 7.05%-7.10% range on Monday, a private bank trader said. It had ended at 7.0917% on Friday. Bond yields move inversely to prices.

"There should be some more relief in sight today, as the latest fall in oil prices has further eased fears of a rate-hike cycle starting from as early as early next month," the trader said.

On Saturday, U.S. President Donald Trump said that Washington and Iran had "largely negotiated" a memorandum of understanding on a peace deal that would reopen the Strait of Hormuz, which before the conflict carried one-fifth of global oil and liquefied natural gas shipments.

However, the two sides remain at odds on several issues, with Trump saying on Sunday he had told his representatives not to rush into any deal with Iran.

Even if a deal is struck, analysts expect that it will take months for oil flows through the strait to return to normal and for damaged oil and gas facilities to be repaired.

The benchmark Brent contract was around $99 per barrel. Elevated oil prices impact India's inflation, current account deficit as well as the government's fiscal math.

Economists at Standard Chartered said the RBI is likely to start hiking rates as early as June 5, citing increasing inflation risks from elevated crude prices. They expect 25 basis-point hikes each in June and August.

RATES

India's overnight index swap rates are set to ease in early trade, tracking a fall in bond yields and oil prices.

The one-year swap INR1YMIBROIS=CC ended at 6.30%, while the two-year rate closed at 6.52%. The five-year rate INR5YMIBROIS=CC settled at 6.8150%.