Wires

UPDATE 3-Oil rises towards $65 on fears of U.S. attack on Iran

Roslan Khasawneh and Dmitry Zhdannikov

* Oil extends gains after 5 percent rally on Thursday

* Trump warned Iran via Oman of imminent attack - sources

* Trump approved strike, then pulled back - NYT

* Iran not keen on talks, warns of consequences - sources (Updates with Iran, prices)

LONDON, June 21 (Reuters) - Oil prices rallied towards $65 per barrel on fears of a U.S. military attack on Iran that would disrupt flows from the Middle East, which provides more than 20% of the world's oil output.

Brent crude was up 42 cents, or 0.66%, at $64.87 a barrel by 0850 GMT. The global benchmark jumped 4.3% on Thursday and was up around five percent for the week, in its first weekly gain in five weeks.

U.S. West Texas Intermediate crude was up 21 cents, or 0.38%, at $57.28 a barrel. The U.S. benchmark surged 5.4% on Thursday and was on track for a 9% increase this week.

"Crude prices are spiking on increased Middle East tensions after Iran shot down a U.S. drone in what the U.S. claims is international airspace," said Jason Gammel from Jefferies.

Iran said it had shot the drone over its territory.

Iranian officials told Reuters on Friday that Tehran had received a message from U.S. President Donald Trump through Oman overnight warning that a U.S. attack on Iran was imminent.

The officials said they had responded by saying that any attack would have regional and international consequences. They also said Supreme Leader Ayatollah Ali Khamenei was against talks but said they would convey the U.S. message to him.

The New York Times reported on Friday, citing sources, that Trump had approved military strikes against Iran but pulled back from launching the attacks.

Tensions have been on the rise because U.S. sanctions on Iran have severely reduced oil exports from OPEC's third largest producer and Washington has blamed Tehran, which denies any role, for a series of attacks on oil tankers in the Gulf.

"There is no doubt that a severe disruption to the transit of oil through this vulnerable route would be extremely serious," said consultancy FGE Energy in a note.

The demand-side outlook has also improved, said Jefferies with appetite for risk assets rising after the European and the U.S. central banks signaled possible rate cuts this week.

A weaker greenback tends to support oil prices because crude is usually priced in dollars.

Another macroeconomic factor supporting prices is the plan by Beijing and Washington to resume talks to resolve a trade tariff war that has hit economic growth prospects.

"Trade anxiety has died down, pushing energy prices higher as global growth will not be pressured by a prolonged tariff war," said Alfonso Esparza, senior market analyst at OANDA.

Concern about slowing economic growth and a U.S.-China trade dispute had pulled oil lower in recent weeks. That came after Brent reached a 2019-high above $75 in April.

(Reporting by Roslan Khasawneh in SINGAPORE and Aaron Sheldrick in TOKYO; Editing by Joseph Radford and Alexander Smith)