TREASURIES-Treasury yields rise for fourth straight day as crude prices elevate inflation risk

* Crude prices continue ascent as U.S.-Iran war widens

* Initial jobless claims slightly below expectations

* Fed rate cut expectations decrease due to inflation fears (Updates to US morning trading)

By Chuck Mikolajczak

NEW YORK, March 5 (Reuters) - U.S. Treasury yields rose for a fourth straight day on Thursday, as the widening war in Iran continued to put upward pressure on oil prices and stoked concern about rising inflation and its impact on Federal Reserve policy. U.S. crude surged 5.5% to $78.77 a barrel and Brent jumped to $84.36 per barrel, up 3.64% on the day, as more tankers came under attack in Gulf waters as the U.S.-Iran war escalated, and Iranian drones entered Azerbaijan, threatening to spread the crisis to more oil producers in the region.

Crude prices have surged roughly 16% since the war began last week.

The yield on the benchmark U.S. 10-year Treasury note rose 4.7 basis points to 4.129% after hitting a three-week high of 4.148%.

"The surge in gasoline prices associated with the events in the Middle East are clearly a concern for people who are anticipating a Fed reaction function," said Michael Green, chief market strategist at Simplify Asset Management in Philadelphia.

"The really critical thing is that fears of inflation are cutting off people's expectations that the Fed cuts, that's really what's powering the curve more than anything else.

Markets are currently pricing in roughly 40 basis points of cuts from the Fed this year, down from about 50 basis points before the war began, according to LSEG data.

The yield on the 30-year bond advanced 3.5 basis points to 4.752% after touching 4.772%, its highest since February 12. Expectations for a cut of at least 25 basis points at the June meeting have fallen to 35.8%, per CME's FedWatch Tool, down from 47.4% a week ago and 75% a month ago.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 55.7 basis points.

Recent economic has also served to indicate price pressures remain while the labor market remains stable, making it less likely the Fed will see the need to reduce interest rates. The Labor Department said weekly initial jobless claims were flat at a seasonally adjusted 213,000, slightly below the 215,000 estimate of economists polled by Reuters. Other data from the Labor Department showed import prices rose 0.2% last month, matching expectations, after an upwardly revised 0.2% gain in December as a decline in the cost of energy products was more than offset by a surge in capital goods prices.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, gained 3.1 basis points to 3.574%. Fed officials have recently expressed views that it will take time to assess the impact of the Iran conflict on monetary policy decisions. However, Governor Stephen Miran said on Bloomberg TV on Wednesday that it had not changed the need for interest rate cuts while Richmond Fed President Tom Barkin said on Thursday that still high inflation and stronger recent jobs numbers may shift the Fed's risk outlook at a time when the U.S. conflict with Iran could further push up key consumer prices.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.533% after closing at 2.5% on Wednesday.

The 10-year TIPS breakeven rate was last at 2.29%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak Editing by Nick Zieminski)