(Updates prices)

* Dollar holds firm on risk aversion

* Oil prices, bond yields rise on fresh Middle East

tensions

* Yen weakens, investors stay alert for intervention

By Amanda Cooper

LONDON, May 18 (Reuters) - The dollar dipped against

most major currencies on Monday, but held near last week's highs

as the Middle East conflict continued to nudge oil prices and

global bond yields higher, while the yen weakened enough to keep

traders watching out for possible intervention.

The euro was last up 0.1% at $1.1635 and sterling

was up 0.3% at $1.3351.

The dollar index, which tracks the U.S. currency against

six others, was a touch softer at 99.17, having posted its

strongest weekly performance in three months last week.

"It appears conditions for risk and bonds are deteriorating

and conditions for the dollar rally to extend this week are

ripe," analysts at Barclays wrote in a note.

Signs that the Strait of Hormuz will remain closed for

longer are also exerting upward pressure, with the dollar

gaining 0.5% to 1% for every 10% rise in oil prices, they added.

Oil prices climbed on Monday, with Brent crude futures

rising more than 1% to over $110 a barrel, after a nuclear power

plant in the United Arab Emirates came under attack and efforts

to end the U.S.-Israeli war on Iran appear to have stalled.

Further denting risk appetite, last week's global bond rout

extended into Monday, as rising energy prices prompted investors

to assume central banks could quickly raise rates.

Benchmark 10-year U.S. Treasury yields were up 1

basis point on the day at 4.603%, having risen by 15 bps in the

last two weeks alone.

Commerzbank strategist Michael Pfister said shifting

expectations for interest rates - and the subsequent rise in

bond yields - were at the heart of the dollar's relative

resilience.

"Although expectations regarding the Fed had shifted

significantly towards a more restrictive monetary policy from

the outset, market participants were still reluctant to bet on

interest rate hikes. This changed last week, with expectations

regarding the Fed shifting most markedly among the G10," he

said.

Minutes from the Federal Reserve's last meeting and U.S. flash

purchasing managers' surveys later this week should help clarify

how concerned the central bank is about persistent inflation and

whether activity momentum is holding up, Christopher Wong, FX

strategist at OCBC, said in a note.

Markets are now pricing in a more than 50% chance that the

Fed would raise rates by December, according to the CME FedWatch

tool.

Investors are also watching as the Group of Seven finance

ministers and central bankers meet in Paris on Monday and

Tuesday to discuss how to bring a lasting end to the war in

Iran.

The yen last traded at 158.94, around its weakest since

April 29, which put investors on alert for a possible

intervention.

Officials in Tokyo intervened a couple of times in late

April and into early May, which saw the yen strengthen by around

3.5% in the days that followed, but the currency has given up

roughly 7% of that rally already.

Japan's government is likely to issue fresh debt as part of

funding for a planned extra budget to cushion the economic blow

from the Middle East war, a government source with direct

knowledge of the deliberations told Reuters on Monday.

Meanwhile, the offshore yuan weakened to 6.808 yuan per dollar

. The meetings between U.S. President Donald Trump and

Chinese President Xi Jinping last week offered no major

breakthroughs, while data released on Monday showed China's

growth lost momentum in April.

HSBC strategists said in a note on Monday they believed the

yuan has more scope to appreciate against the euro than against

the dollar, the yen or the Korean won.

(Additional reporting by Jiaxing Li in Hong Kong; Editing by

Thomas Derpinghaus, Susan Fenton and Chizu Nomiyama )