(Updates to U.S. afternoon trading, adds market details)

* Brent crude falls 8% as US halts Iran strikes

* Traders see a one-in-three chance of a 25 bps Fed hike

this week

* Traders remain on watch for yen intervention

By Saqib Iqbal Ahmed and Medha Singh

NEW YORK, July 27 (Reuters) - The dollar traded with a

softer tone against the euro and the yen on Monday as a pause in

U.S. bombing in Iran sent oil prices lower and bolstered risk

appetite ahead of a busy week of central bank meetings.

The euro rose as much as 0.4% before paring gains to trade

about flat on the day at $1.1371, while the U.S. dollar slipped

0.1% to 163.74 yen.

Oil prices sank, with Brent crude futures down $7.78, or

8%, at $89 a barrel after the U.S. military temporarily halted

its two-week-long strikes. Tehran said it would also halt

attacks if the U.S. maintained the pause, raising hopes for

renewed diplomatic efforts to de-escalate the conflict.

Still, the dollar was off the day's lows as the retreat in U.S.

yields, which move in the opposite direction of bond prices, was

more modest in comparison to the drop in yields in other

markets, offering support to the U.S. currency.

"While USD is down on the day, it has been shifting higher

in the day as U.S. rates have rallied by less than those in the

rest of the world," Benjamin Ford, researcher at macro research

and strategy firm Macro Hive, said.

"Overall, that leaves you in a state where the market needs

to put front-end rates pricing up against risk premium," Ford

said.

The dollar's softer tone comes ahead of the Federal

Reserve's July 28 to 29 policy meeting.

With new Fed Chair Kevin Warsh providing few clues on the

policy outlook, traders see a roughly 33% chance of a

quarter-point Fed rate hike on Wednesday, down from 37% at the

end of last week but double the probability seen a week ago,

according to CME Group's FedWatch tool.

"The FOMC statement might acknowledge the upside risks to

inflation posed by renewed geopolitical conflict, and Warsh

might as well in his press conference," Goldman Sachs Chief U.S.

Economist David Mericle said in a note.

Investors will also look to U.S. second-quarter GDP data and

the Fed's preferred inflation gauge, core PCE inflation, this

week for more clues on the health of the world's biggest

economy.

POLICY UNCERTAINTY

The Bank of England and Bank of Japan are widely expected to

keep interest rates unchanged at their meetings on Thursday and

Friday, respectively, while maintaining a cautious stance on

inflation.

With the yen pinned near last week's 40-year lows against the

dollar, the Bank of Japan is expected to leave the door open to

further hikes to arrest the currency's decline, although

policymakers will likely stay ambiguous on the pace and timing

of the moves. Verbal efforts to support the Japanese currency

have so far yielded muted results.

"The MoF's intervention window looks increasingly like it

has passed," Ford said.

"They need concrete evidence the USD top has been found,"

added Ford, who sees the risk of intervention beginning to climb

once it has become clearer that oil is also shifting lower.

The pound pared early gains to trade about 0.1% lower

at $1.3308 ahead of Thursday's BoE meeting. The central bank

faces renewed inflation risks from higher oil prices, just days

after new Prime Minister Andy Burnham and finance minister John

Healey took office.

In cryptocurrencies, bitcoin was about flat on the

day at $64,812.