** U.S. defense stocks advance on Fri as Middle East war heats up

** President Trump on Fri demanded Iran's "unconditional surrender", a dramatic escalation a week into the war he launched alongside Israel, as he plans to meet with defense contractor executives today and press them to boost production to replenish supplies

** Lockheed Martin LMT.N up 2.5%, Northrop Grumman NOC.N up 2.2%, RTX RTX.N up 2.8%

** Drone makers rising on the session: Kratos Defense & Security Solutions KTOS.O, which makes the fighter-jet-like Valkyrie drone, up >4%, AeroVironment AVAV.O, known for its Switchblade kamikaze drone, up ~6%, Red Cat Holding RCAT.O up ~4%

** U.S.-listed shares of Israel's Elbit Systems ESLT.O, which makes military drones, up 7%

** NYSE Arca Defense index .DFII up about 2% on Fri, extending YTD gain to nearly 18%

(Lance Tupper is a Reuters market analyst. The views expressed are his own)

((lance.tupper@tr.com 1-646-279-6380))