SINGAPORE, May 7 (Reuters) - Asian stocks soared to record highs on Thursday while the U.S. dollar slipped and oil nursed steep losses as traders embraced the prospect of a peace deal in the Middle East, although the fate of the critical Strait of Hormuz remains unresolved.

Japan's Nikkei returned from a long holiday to cross 62,000 for the first time, catching up on a blistering AI-led rally after robust earnings that has also catapulted South Korean and Taiwan stocks to records.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 1%, hitting another all-time high. The index is up 7% so far this week.

Kyle Rodda, senior financial analyst at Capital.com, said the market moves on Thursday were justified as a deal would be a breakthrough.

"But we've seen this story before, and the rug could get pulled out of the market pretty quickly too. Ultimately, if we keep seeing progress in talks, Asian markets will keep rallying."

Iran said it was reviewing a peace proposal that sources said would formally end the war while leaving unresolved the key U.S. demands that Iran suspend its nuclear program and reopen the Strait of Hormuz, whose closure has sent oil prices surging.

A potential deal to end the war, which started at the end of February, sent oil prices sliding nearly 8% on Wednesday. Brent crude was a touch higher at $102.11 a barrel in early Asian hours on Thursday. [O/R]

Still, oil prices are around 40% higher than they were when the conflict began, while 10-year Treasury yields are around 40 bps higher, underscoring the challenge facing the global economy from higher energy prices and pricing pressures.

"Even if the strait reopens in coming weeks, oil is likely to stay elevated and slow to ease given damage to energy infrastructure and precautionary stockpiling," said OCBC analysts in a note.

Federal Reserve officials said the war is raising the risk of a sustained inflation shock, with continued high oil prices and developing concerns about problems with global supply chains.

YEN STAYS IN SPOTLIGHT

In currency markets, the euro held on to its overnight gains of around 0.5% and last fetched $1.1747. Sterling was at $1.3591 after rising 0.4% on Wednesday. The dollar index, which measures the U.S. currency against six units, was at 98.032.

The yen remains in the spotlight after bouts of surges in the past few sessions triggered speculation that Tokyo may be stepping in to support the battered currency.

It was last at 156.29 per dollar, little changed on the day, having hit a 10-week high of 155 in the previous session in a sudden jump.

OCBC analysts said the key question is whether the Ministry of Finance will continue to defend the yen or has already deployed sufficient firepower.

"Intervention alone is unlikely to shift the broader trend unless backed by stronger policy support like a more assertive BOJ hiking cycle or better alignment with external drivers such as lower oil prices and U.S. yields," they said in a note, maintaining their year-end target of 155.

The rocketing oil prices whacked global markets in March but a fragile ceasefire and the prospect of a deal spurred a risk-on rally since April that has been fuelled further by strong earnings reports from technology companies.

Overnight, the S&P 500 and the Nasdaq surged to record-high closes on earnings. S&P 500 companies are on track for their strongest profit growth in more than four years.

Investors were awaiting the non-farm payrolls report on Friday, with U.S. jobs seen increasing by 62,000 in April after rebounding 178,000 in March, according to a Reuters survey of economists.

(Reporting by Ankur Banerjee in Singapore; Editing by Muralikumar Anantharaman)