* Dollar headed for sharpest monthly gain since July

* Yen close to 160 after Japan steps up intervention

threats

* ECB rate expectations support the single currency

(Adds comment, background)

By Stefano Rebaudo

March 30 (Reuters) - The dollar was near a 10-month high

on Monday and heading for its biggest monthly gain since last

July as mixed signals from Iran and the U.S. dimmed hopes of a

possible quick end to the Middle East conflict.

U.S. President Donald Trump said that Iran's new leaders

have been "very reasonable", as more U.S troops arrived in the

region and Tehran warned it will not accept humiliation.

The yen hovered near the key 160 per-dollar level, after

hitting its weakest since July 2024 when Tokyo last intervened

to shore up the currency, while the euro found some support from

expectations of European Central Bank rate hikes.

Markets have been rattled this month after the Iran conflict

effectively shut the Strait of Hormuz, a chokepoint for about a

fifth of global oil and gas flows, with Brent futures extending

gains, after Yemeni Houthis launched their first attacks on

Israel.

The dollar has benefited from its safe-haven status since

early March, with higher oil prices hurting Japan and the euro

zone but insulating the U.S. as a net crude exporter.

Barclays said dollar sentiment was approaching "max bullish"

levels on its index, according to traditional gauges including

growth proxies, rate differentials and beta indicators.

The U.S. dollar index rose 0.1% to 100.28. It hit

100.54 in mid-March, its highest level since May 2025, and was

on track for its biggest monthly rise since July 2025.

"Barring any clear, conciliatory messages from the Iranian

side, it is hard to see the dollar handing back this month's

gains anytime soon," said Chris Turner, global head of forex

strategy at ING.

Markets will closely watch U.S. jobs data later in the week,

which could affect expectations for the Federal Reserve policy

path.

"In the eye of the storm, this week delivers a crucial run

of U.S. labour market data," said Bob Savage, head of markets

macro strategy at BNY.

"Given the weak February jobs report and a month of conflict

in the Middle East, we're keen to learn how the jobs situation

has responded," he said.

ECB RATE OUTLOOK

The euro was around $1.15, on course for a 2.5% drop

in March, its weakest monthly decline since July.

"In recent days, as the oil price resumed its upward trend

and the dollar gained ground across the board, the euro/dollar

would have fallen much more sharply if the market did not

anticipate such an activist ECB," said Thu Lan Nguyen, head of

forex and commodity research at Commerzbank.

"As long as this picture remains intact, the downside

potential for the euro/dollar is likely to remain limited," she

added.

Markets priced in the ECB rate hikes by year-end

from an over 50% chance of a cut before the

conflict started.

YEN STILL NEAR INTERVENTION LEVELS

The Japanese yen firmed 0.40% to 159.65 per dollar

after hitting 160.47 in the Asian session, its weakest level

since July 2024.

The reversal came as Japan geared up its threat of yen

intervention and signalled 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.

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.