* Dollar index hits highest since May 2025

* Yen recovers on intervention threats

* Korean won tumbles, AUD, NZD break down to multi-month

lows

(Updates with early European trading)

By Tom Westbrook and Alun John

SINGAPORE/LONDON, March 31 (Reuters) - The dollar headed

for its biggest monthly gain since July on Tuesday and stands

out as the strongest so-called safe asset, as war in the Middle

East has set oil prices surging, nearly everything else sinking

and raised the risk of global recession.

Developed market currencies were broadly steady on the day,

with the Japanese yen unchanged at 159.62 per dollar, the

euro flat at $1.1472 and the pound 0.14% higher at

$1.3202.

But still all three were set for March falls of more than

2%. For the euro and pound, that is the largest drop since July,

and since October for the yen.

The dollar has been supported by the U.S. status as an

energy exporter and by investors' flight to cash over the past

month of conflict.

The latest news from the war, including a Wall Street

Journal report that U.S. President Donald Trump was willing to

end attacks on Iran without forcing open the Strait of Hormuz,

did little for currencies on Tuesday, but did underscore their

monthly moves.

"The lack of a clear plan to reopen the Strait continues to

pose upside risks to global energy prices," said Lee Hardman,

senior currency analyst at MUFG.

"The potential for a bigger hit to growth outside of the

U.S. continues to encourage a stronger U.S. dollar," he said.

Asian currencies have suffered some of the largest losses

and, on Tuesday, the dollar pushed 1% higher against South

Korea's won, to 1,534 won, levels touched only in the

wake of the global financial crisis in 2009 and the Asian

financial crisis in 1997 and 1998.

The dollar index, which tracks the unit against six main

peers, touched its highest since last May at 100.64 and, last

sitting at 100.47, is up 2.8% through March.

WATCHING THE YEN

Also top of mind for currency markets were renewed threats

of intervention from Tokyo, which served to spare extra selling

pressure on the yen, currently at its weakest since July

2024.

Finance Minister Satsuki Katayama on Tuesday repeated

Tokyo's readiness to respond "on all fronts" against volatile

moves, saying they were seeing "speculative moves heightening in

the currency market," as well as in the oil futures market.

The dollar has stood tall since the war began over other

perceived safe assets, not just the yen.

A looming inflation spike has hurt bonds. A positioning

clearout has sunk gold, while the energy shock hurts Japan's

terms of trade and Swiss authorities have indicated they would

intervene to stem any steep gains for the franc.

The dollar is up nearly 4% for the month on the franc

, at 0.80 francs, and has broken resistance levels for the

Aussie and kiwi in recent sessions.

The Aussie has fallen for eight sessions and hit a

two-month low of $0.6834, down 3.7% for March and under major

support at $0.6897, while the kiwi, down six straight

sessions, is on the verge of breaking below 57 cents.

The main risk to the dollar might come from labour data due

out in the liquidity vacuum of Good Friday, or, warned

strategists at Union Bancaire Privee, a breakdown in the

relationship that usually sees the dollar higher if stocks fall.

"FX - equity correlations have been quite stable since the

outbreak of the conflict, though this could change if markets

move to price in a more prolonged conflict - with still

uncertain outcomes," they said.

March inflation data is due later in the session in Europe

and German data from Monday suggests it is likely to rip back

above the European Central Bank's 2% target.