* Fed rate hike odds rise as traders eye inflation,

energy disruptions

* Yen weakens, BOJ seen hiking rates slowly

* Australia, Europe face growth risks from energy costs,

supporting dollar strength

(Updated in New York morning time)

By Karen Brettell and Amanda Cooper

NEW YORK/LONDON, May 22 (Reuters) - The dollar held near

six-week highs on Friday as traders weighed the prospects of a

near-term deal to end the Middle East war and assessed whether

the Federal Reserve would raise interest rates if inflation

continued to accelerate.

Iran's foreign minister met with Pakistan's interior

minister to discuss proposals to end the U.S.-Israeli conflict,

Iranian media reported. The two sides remain at odds over

Tehran's uranium stockpile and control of the Strait of Hormuz.

Traders are increasingly concerned that ongoing energy

disruptions will filter through to core consumer prices,

potentially forcing a tighter monetary policy response.

"The key question now, of course, is if the Fed is going to

hold," said Noel Dixon, global macro strategist at State Street

Global Advisors. So far, inflation pressures feeding into the

Fed's preferred gauge - Personal Consumption Expenditures - have

remained relatively contained, Dixon said, supporting the case

for keeping rates on hold.

However, he cautioned that "the risk to my view is that

Trump resumes attacks on Iran in an aggressive fashion. That

could be a catalyst for greater interest rate volatility, and

that could cause the Fed to panic and seriously consider a

hike."

Fed funds futures traders are pricing in 54% odds of a rate

hike by December.

The dollar index, which measures the greenback against a

basket of currencies including the yen and the euro,

rose 0.09% to 99.28, with the euro down 0.12% at $1.1604.

The pound gained 0.08% to $1.344, having shrugged off

data earlier that showed retail sales dropped by the most in

nearly a year in April, as consumers felt the pinch of the

inflationary effects of the Iran war.

Countries more exposed to rising energy costs face mounting

growth concerns, lending further support to the U.S. dollar over

its peers. Australia, for instance, is grappling with shortages

of jet fuel and diesel that are likely to weigh on several key

industries, Dixon noted.

The Australian dollar weakened 0.27% versus the

greenback to $0.7128.

UNDER PRESSURE

The U.S. dollar's strength and persistently high oil prices

have spelled pain for the yen, which on Friday weakened

0.06% against the greenback to 159.1 per dollar.

The yen remains fragile even after what was likely

intervention by Tokyo just weeks ago to prop it up - it has

since surrendered nearly 75% of those gains, keeping traders on

alert for further action by Japanese authorities.

"It's just buying time, really. What they need is a change

in fundamentals, and I think the best thing that could happen is

a quick deal to end the Iran conflict," said Lee Hardman, a

currency strategist at MUFG.

The Bank of Japan is expected to raise borrowing costs only

gradually, while other central banks - including the European

Central Bank - are likely to move far more quickly, putting the

yen at a disadvantage with yield-seeking investors.

Data on Friday showed Japan's core inflation slowed to a

four-year low in April, complicating the outlook for BOJ policy.