* Dollar headed for sharpest monthly gain since July

* Risk-off sentiment props up dollar as stagflation risks

swirl

* Verbal jawboning, Ueda comments pull yen away from

160/dlr level

(Updates to Asia mid-morning)

By Ankur Banerjee

SINGAPORE, March 30 (Reuters) - The U.S. dollar held

broadly steady on Monday, poised for its strongest monthly gain

since July as investors fret about the ramifications of a long

war in the Middle East, denting the yen past the crucial 160

level and spurring intervention jitters.

Markets have been rattled this month after the conflict

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

fifth of global oil and gas flows, driving Brent crude toward

its biggest monthly rise and unsettling rate expectations.

The war, sparked by U.S. and Israeli strikes on Iran on

February 28, has since spread across the Middle East, with fears

of a ground offensive and the entry of Yemen's Iran-aligned

Houthis on Saturday further souring sentiment.

Pakistan said it was preparing to host "meaningful talks" to

end the conflict in coming days even though Tehran said it is

ready to respond if the United States launches a ground

operation.

Investors were largely unmoved by comments from U.S.

President Donald Trump that Washington has held "direct and

indirect" talks with Iran and that its new leaders have been

"very reasonable."

That left the dollar on the front foot as investors sought

safety this month. The euro fetched $1.1512, on course

for a 2.5% drop in March, its weakest monthly decline since

July.

Sterling was at $1.32585, little changed on the day

but set for a drop of 1.7% this month. The dollar index,

which measures the U.S. currency against six other units, was at

100.14 in early trading.

"What stands out is how quickly probabilities have shifted.

Only two weeks ago, U.S. boots on the ground in Iran was seen as

a low-probability outcome," said Chris Weston, head of research

at Pepperstone.

"That has clearly changed, reinforcing the need for markets

to remain open-minded. The playbook is to sell rallies in risk

and maintain volatility hedges"

For now, the broader market focus is firmly on oil prices as

Brent crude futures sit at $114.6 per barrel, up about

58% in March, its strongest monthly surge on record.

"Where the USD goes from here is simply a view on oil. Where

oil goes, the USD goes," said Prashan Newnaha, senior rates

strategist at TD Securities.

Elevated oil prices have reignited inflation concerns,

prompting U.S. rate futures to begin pricing in the risk of a

Federal Reserve rate hike later this year, a sharp shift from

earlier this year when traders were betting on as many as two

rate cuts in 2026.

At the same time, investors are increasingly weighing the

longer-term economic toll of a prolonged war.

"Central banks find themselves in the most uncomfortable of

positions: facing prices that argue for tightening while growth

signals argue for caution," said Marc Chandler, chief market

strategist at Bannockburn Capital Markets.

"It is stagflation's calling card, and it arrived before

most were ready to receive it."

FRAIL YEN BACK IN SPOTLIGHT

The Japanese yen firmed to 159.77 per dollar after

hitting 160.47 earlier in the session, its weakest level since

July 2024 when Tokyo last intervened in the currency markets.

The reversal came as Japan geared up its threat of yen

intervention and signaled 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.

Japan's top currency diplomat Atsushi Mimura said

authorities may need to take "decisive" steps if speculative

moves persist in the currency market, while Bank of Japan

Governor Kazuo Ueda said the central bank will closely watch yen

moves as they affect the economy and prices.

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.