UPDATE 3-Sri Lanka president orders New Year halt to fighting

* President tells military to halt attacks on Tamil Tigers

* Pause planned to allow civilians to escape no-fire zone

* U.N.'s Ban welcomes move "as a useful first step"

(Adds U.N. statement, embassy attack)

By Ranga Sirilal and C. Bryson Hull

COLOMBO, April 12 (Reuters) - Sri Lanka's president on Sunday ordered the military not to attack the Tamil Tigers during a two-day holiday to let thousands of civilians escape a no-fire zone where they are being held by the separatists.

Soldiers have encircled the remnants of the Liberation Tigers of Tamil Eelam (LTTE) in a 17 square km (6 sq mile) no-fire zone on the northeast coast, and are close to crushing them and ending Asia's longest-running civil war.

President Mahinda Rajapaksa said people should be "given uninhibited freedom of movement from the no-fire zone" in the Sinhala and Tamil New Year period on Monday and Tuesday, and again urged the Tigers to surrender and renounce violence.

"With this objective in view, His Excellency has directed the armed forces of the state to restrict their operations during the New Year to those of a defensive nature," the presidential statement said.