* Yen, euro and sterling gain vs. dollar

* Ceasefire expectations rise but mixed signals keep FX

markets cautious

* US jobs report and labour market outlook may influence

Fed rate cut expectations

(Updates for early European afternoon trading)

By Satoshi Sugiyama and Samuel Indyk

LONDON, April 1 (Reuters) - The dollar dropped for a

second day on Wednesday as expectations of a ceasefire in the

Middle East conflict grew after the U.S. signalled that an end

to the war could be near, even though markets remained on edge

on fears of escalation.

The White House said U.S. President Donald Trump would

address the nation "to provide an important update on Iran" at 9

p.m. EDT on Wednesday (0100 GMT on Thursday).

Trumpsaid on Tuesday the U.S. could end its military

campaign against Iran within two to three weeks, while Secretary

of State Marco Rubio told Fox News Washington could see the

"finish line" in the Iran war.

Expectations that a ceasefire could be near have reversed

some of the most popular trades since the war began in late

February.

The yen recovered from this year's low of 160.46 per dollar,

moving back through the psychologically important 160 level that

had fanned concerns about intervention by Japanese authorities.

The euro hit its highest level in a week.

The dollar index, which measures the currency against

a basket of currencies including the yen and the euro, was last

down 0.3% at 99.456, slipping to a one-week low after a 0.65%

fall on Tuesday.

"Markets are increasingly buying into the notion of

de-escalation in the Middle East overall," said Kirstine

Kundby-Nielsen, FX analyst at Danske Bank.

"Markets are optimistic. We're seeing some relief with rates

going lower, equities going higher and the price action in

euro-dollar reflects that quite well."

The euro edged up 0.5% versus the dollar to $1.1603,

after rising 0.8% on Tuesday.

The Japanese yen was up 0.1% at 158.46 per dollar.

Sterling strengthened 0.7% to $1.3313.

At the same time, there were still signs of escalation in

the conflict. U.S. Defense Secretary Pete Hegseth said the next

few days in the war against Iran would be decisive and warned

Tehran that the conflict would intensify if it did not make a

deal.

Meanwhile, attacks took place on multiple fronts on

Wednesday, with drones hitting fuel tanks at Kuwait's

international airport and Qatar said an oil tanker was struck by

an Iranian cruise missile in Qatari waters.

The U.S. dollar has benefited from a safe-haven bid since

the conflict began in late February, and the U.S., a net energy

exporter, is also relatively better positioned to handle oil

disruptions than other nations.

Brent crude futures fell below $100 per barrel on

Wednesday, although they were last trading at about $102.70.

EYES ON JOBS

This week's main U.S. economic focus will be Friday's jobs

report for March. It is expected to show that employers added

60,000 jobs during the month, according to the median estimate

of economists polled by Reuters, following an unexpected loss of

92,000 jobs in February.

A sharp deterioration in the labour market would likely

revive expectations for rate cuts from the Federal Reserve this

year, which have been largely priced out as rising oil prices

from the Iran war stoked inflation concerns.

Markets were pricing in about 11 basis points of easing from

the Fed this year, implying just under a 50% chance of a

quarter-point rate cut in 2026.

For the yen, the Japanese currency was little changed after

the Bank of Japan's quarterly Tankan survey showed business

sentiment among large Japanese manufacturers improved in the

three months to March, though firms expect conditions to worsen

in the next three months.

The dollar should remain supported by the Fed's cautious

stance on rate cuts, while the yen is being underpinned by

rising expectations of a Bank of Japan hike in April, said Sho

Suzuki, market analyst at Matsui Securities.

"We may see a tug-of-war between dollar strength and yen

strength, with USD/JPY trading sideways in the upper 150s," he

said.

The Australian dollar strengthened 0.7% to $0.6946.

New Zealand's kiwi strengthened 0.4% to $0.5770.

(Reporting by Samuel Indyk and Satoshi Sugiyama; Editing by

Lincoln Feast and Arun Koyyur)