SINGAPORE, March 30 (Reuters) - The U.S. dollar held broadly steady on Monday, poised for its strongest monthly gain since July as investors fret about the ramifications of a long war in the Middle East, denting the yen past the crucial 160 level and spurring intervention jitters.

Markets have been rattled this month after the conflict effectively shut the Strait of Hormuz, a chokepoint for about a fifth of global oil and gas flows, driving Brent crude toward its biggest monthly rise and unsettling rate expectations.

The war, sparked by U.S. and Israeli strikes on Iran on February 28, has since spread across the Middle East, with fears of a ground offensive and the entry of Yemen's Iran-aligned Houthis on Saturday further souring sentiment.

Pakistan said it was preparing to host "meaningful talks" to end the conflict in coming days even though Tehran said it is ready to respond if the United States launches a ground operation.

Investors were largely unmoved by comments from U.S. President Donald Trump that Washington has held "direct and indirect" talks with Iran and that its new leaders have been "very reasonable."

That left the dollar on the front foot as investors sought safety this month. The euro fetched $1.1512, on course for a 2.5% drop in March, its weakest monthly decline since July.

Sterling was at $1.32585, little changed on the day but set for a drop of 1.7% this month. The dollar index, which measures the U.S. currency against six other units, was at 100.14 in early trading.

"What stands out is how quickly probabilities have shifted. Only two weeks ago, U.S. boots on the ground in Iran was seen as a low-probability outcome," said Chris Weston, head of research at Pepperstone.

"That has clearly changed, reinforcing the need for markets to remain open-minded. The playbook is to sell rallies in risk and maintain volatility hedges"

For now, the broader market focus is firmly on oil prices as Brent crude futures sit at $114.6 per barrel, up about 58% in March, its strongest monthly surge on record.

"Where the USD goes from here is simply a view on oil. Where oil goes, the USD goes," said Prashan Newnaha, senior rates strategist at TD Securities.

Elevated oil prices have reignited inflation concerns, prompting U.S. rate futures to begin pricing in the risk of a Federal Reserve rate hike later this year, a sharp shift from earlier this year when traders were betting on as many as two rate cuts in 2026.

At the same time, investors are increasingly weighing the longer-term economic toll of a prolonged war.

"Central banks find themselves in the most uncomfortable of positions: facing prices that argue for tightening while growth signals argue for caution," said Marc Chandler, chief market strategist at Bannockburn Capital Markets.

"It is stagflation's calling card, and it arrived before most were ready to receive it."

FRAIL YEN BACK IN SPOTLIGHT

The Japanese yen firmed to 159.77 per dollar after hitting 160.47 earlier in the session, its weakest level since July 2024 when Tokyo last intervened in the currency markets.

The reversal came as Japan geared up its threat of yen intervention and signaled that further falls in the currency could justify a near-term interest rate hike. The yen has dropped over 2% in March on higher oil price worries.

Japan's top currency diplomat Atsushi Mimura said authorities may need to take "decisive" steps if speculative moves persist in the currency market, while Bank of Japan Governor Kazuo Ueda said the central bank will closely watch yen moves as they affect the economy and prices.

In other currencies, the Australian dollar was 0.3% weaker at $0.6851, on course for a monthly drop of 3.8%, its steepest decline since December 2024. The New Zealand dollar weakened 0.4% to $0.57275, down 4.4% in March.