JOHANNESBURG, April 29 (Reuters) - The South African

rand fell sharply on Wednesday as investors waited for the U.S.

Federal Reserve's interest rate decision later in the day,

against a backdrop of an Iran war that shows little sign of

imminent resolution.

* At 1405 GMT the rand traded at 16.7350 against the dollar

, down 1.3% from its previous close.

* The U.S. dollar strengthened against the basket of

currencies as the Federal Reserve was expected to hold interest

rates steady, amid growing concerns that elevated energy costs

could morph from a one-off shock into broader underlying

inflation.

* Diplomatic efforts to end the Iran conflict have stalled,

with U.S. President Donald Trump rejecting Tehran's latest

proposal and saying Iran had told Washington it was in a "state

of collapse" while working out its leadership.

* The nearly two-month war in the Middle East has led to

soaring fuel prices, eroding consumer confidence to a record low

and wiping out market pricing for rate cuts.

* Nedbank economists said in a research note that markets

broadly expect policy rates to be held steady, reflecting a

continued "wait-and-see" approach amid elevated geopolitical

uncertainty and mixed inflation dynamics.

* "The Fed is expected to keep the Fed funds target rate

unchanged at 3.75%, as disinflation progress remains uneven and

activity data continues to surprise modestly to the upside," the

bank's economists said.

* On the Johannesburg Stock Exchange, the Top-40 index

was down 0.7%.

* South Africa's benchmark 2035 government bond

was weaker, as the yield rose 8.5 basis points to 8.845%.