(Updates to U.S. morning)

* Oil slips as hostilities pause, but rate hike speculation

remains

* A 25-bps Fed rate hike forecast stands at roughly 40%, per

LSEG

* BOE, BOJ widely expected to leave rates unchanged this

week

By Saqib Iqbal Ahmed

NEW YORK, July 28 (Reuters) - The U.S. dollar held near its

highest level in almost five weeks on Tuesday, as traders

weighed the prospect of a Federal Reserve interest-rate hike

this week, even as falling oil prices eased some inflation

concerns.

The dollar index, which measures the greenback against a

basket of currencies including the yen and the euro, was about

flat at 101.49, near the highest since June 25. The euro

was up 0.5% to $1.13725, while sterling rose 0.1% to

$1.3302. Against the Japanese yen, the dollar rose 0.1%

to 163.83 yen.

The dollar's resilience reflects a sharp repricing of Fed

expectations in recent months. Treasury yields have climbed

steadily since April as the U.S.-Iran conflict stoked concerns

about inflation and a hawkish debut from Fed Chair Kevin Warsh

reinforced expectations of higher interest rates.

"Traders are taking steps to preserve liquidity and adding to

dollar longs ahead of tomorrow's decision," said Karl Schamotta,

chief market strategist at Corpay in ​Toronto.

"A rate hike is still not the base case for most investors, but

the meeting is clearly live, and many are covering their tails,"

Schamotta said.

The Fed concludes its two-day policy meeting on Wednesday, with

some major brokerages warning that policymakers could raise

rates, given this month's surge in oil prices.

While oil prices have retreated after the U.S. paused

attacks on Iran and President Donald Trump hailed "good talks"

with Iran, yields remain near their multi-month highs.

Investors raised long dollar positions while increasing short

sterling bets in the week ended July 24, according to Morgan

Stanley options pricing data.

Markets are pricing a nearly 40% chance of a 25-basis-point

rate increase on Wednesday, up from about 20% a week ago,

according to LSEG data. Traders see almost a 95% probability of

a hike by September.

PACKED CENTRAL BANK WEEK

Both the Bank of England and the Bank of Japan are widely

expected to keep interest rates unchanged at their meetings on

Thursday and Friday, respectively, and caution against rising

inflation.

Traders have been on intervention watch as the yen's

relentless decline drove it to a fresh 40-year low.

The BOJ is expected to keep the prospect of further rate

hikes alive to support the currency, though policymakers are

likely to remain vague on the timing and pace of any tightening.

"Traders are playing a high-stakes game of chicken with the

Ministry of Finance as the yen approaches yet another

psychological threshold," Schamotta said.

Tokyo stepped into the market in April and May as the yen

breached 160 per dollar, though the moves did little to alter

its broader decline.

In a Reuters NEXT Newsmaker interview on Tuesday, Japanese

Finance Minister Satsuki Katayama reiterated that Tokyo's stance

of responding to currency moves as needed was unchanged, adding

that she believed Washington shared that view.

In cryptocurrencies, bitcoin fell 3% to $63,116.