* Dollar set for small weekly fall on possible US-Iran

ceasefire

* Analysts expect near-term dollar weakness

* Yen near key 160 intervention level; Tokyo inflation

stays below 2%

(Updates for European morning trading)

By Samuel Indyk and Jiaxing Li

LONDON/HONG KONG, May 29 (Reuters) - The dollar steadied

against other major currencies on Friday, but was on track to

end the week lower after sources said that the U.S. and Iran had

reached an agreement to extend their ceasefire and lift

restrictions on shipping through the Strait of Hormuz.

The deal, still pending U.S. President Trump's approval, would

extend the truce for another 60 days and allow traffic to flow

through the strategic waterway while negotiators tackle

difficult issues such as Iran's nuclear programme, four sources

told Reuters.

The dollar benefited at the outbreak of the war, given its

status as a safe haven and the limited exposure of the U.S. to

imported energy-price inflation. It was heading toward ending

this week 0.3% lower, snapping two weeks of gains, on signs a

ceasefire deal may be close.

Those signs also sent Brent crude oil futures down

for a third day and on track for their second weekly decline of

at least 8%.

"In the near term, you'll likely see a weaker dollar," said

Kirstine Kundby-Nielsen, senior analyst at Danske Bank.

Longer term, the dollar should strengthen against the euro

given the relative growth trajectory between the U.S. and the

euro zone, expansionary U.S. fiscal policy, underlying

inflationary pressures related to AI and a resilient U.S. labour

market, Kundby-Nielsen said.

The euro traded flat at $1.1643, while the pound was

down 0.2% against the dollar at $1.3418. The Australian dollar

was steady at $0.7160.

The New Zealand dollar rose 0.4% to $0.5963, its

strongest level in more than two weeks, extending a recent rally

after the country's central bank governor signalled earlier and

steeper rate hikes were likely.

The dollar index, which measures the greenback

against a basket of currencies, was trading in a narrow range

near 99. It dipped 0.2% on Thursday and was down 0.3% for the

week.

Data on Thursday showed U.S. inflation rising at its fastest

pace in three years in April, driven by higher energy prices due

to the Iran war and cementing economists' views that the Federal

Reserve will hold interest rates unchanged well into next year.

YEN CLOSE TO 160

The Japanese yen traded at 159.30 per dollar, and

remained close to the psychologically significant 160-per-dollar

level that has previously led to interventions by Japanese

authorities.

Data on Friday showed annual core inflation in Japan's

capital stayed below the central bank's 2% target for a fourth

straight month in May, while factory output rebounded in April.

"We do not expect Tokyo's inflation gauges to derail a Bank

of Japan interest rate hike in June," said Samara Hammoud,

currency strategist at Commonwealth Bank of Australia.

"High inflation expectations and a tight labour market

support the path of policy normalisation."