* South Africa expected to keep rates steady

* Poland weighs VAT cut for fuel

* EM stocks fall 1.6%, FX down 0.4%

By Pranav Kashyap

March 26 (Reuters) - Most emerging market stocks

retreated sharply on Thursday as investors fled riskier assets

and waited for clearer signs on whether a de-escalation in the

Iran war was truly within reach.

U.S. President Donald Trump said Iran was eager to strike a

deal after nearly four weeks of fighting, a claim that stood in

stark contrast to comments from Iran's foreign minister, who

said Tehran was reviewing a U.S. proposal but had no plans to

enter talks aimed at winding down the conflict.

"Market attention is quickly turning to the end of Trump's

5-day deadline," Deutsche Bank's Jim Reid said. "There's still

plenty of doubt.. given how Iran have publicly rejected the US

on several occasions."

In South Africa, stocks tumbled nearly 2%, while

the rand weakened 0.4% ahead of the central bank's

interest-rate decision, where policymakers are widely expected

to leave the rates unchanged at 6.75%.

That anticipated pause comes as annual inflation eases back

toward the central bank's target, but economic growth remains

sluggish.

The path for rates will be closely watched as policymakers

try to revive momentum without reigniting price pressures,

especially as an energy-driven inflation shock keeps the South

African Reserve Bank - and many of its emerging-market peers -

in an increasingly uncomfortable bind.

Mexico's central bank is also expected to stand pat later in

the day.

A broad index tracking emerging-market equities

dropped 1.6%, wiping out much of the previous session's rebound.

The index is down more than 10% this month and now clings to

gains of just 3% for the year, surrendering much of the strong

start it enjoyed early on.

"Despite recent volatility from geopolitical tensions and

higher oil prices, we maintain a constructive outlook on EM

equities," UBS analysts said.

Poland's zloty attempted to edge higher but was

stuck in a narrow range, while stocks fell as investors

weighed the prospect of a fuel tax cut aimed at easing prices at

the pump - a move in a country that is already grappling with

one of the European Union's widest budget deficits.

Other central and eastern European currencies were similarly

subdued.

Hungary, on Wednesday, said it would gradually halt natural

gas shipments to Ukraine until crude flows through the Druzhba

pipeline resume. Kyiv's international dollar bonds slipped by

about a cent.

From Warsaw to New Delhi, Sao Paulo to Seoul, governments

across the emerging world have been scrambling to shield their

economies from the fallout of a war that is nearing the

one-month mark.

With the crucial Strait of Hormuz shut, oil prices have

surged wildly, rattling markets and forcing a dramatic rethink

among emerging-market central banks.

At the start of the year, a few, like Hungary and Brazil

were preparing to cut interest rates. Now, with war-fuelled

inflation risks mounting, they are being forced to consider

whether the next move may need to be in the opposite direction.

(Reporting by Pranav Kashyap in Bengaluru; Editing by Arun

Koyyur)