(Updates with U.S. morning trade)

* Iran, US trade blows over the weekend

* BOJ Governor Ueda's upcoming speech eyed for rate-hike

signals

* Traders focusing on US jobs data this week

By Hannah Lang and Samuel Indyk

NEW YORK/LONDON, June 1 (Reuters) - The U.S. dollar was

higher on Monday after a small weekly loss as investors digested

fresh developments in Middle East peace talks after the U.S. and

Iran traded blows over the weekend, raising questions about the

fragility of diplomatic efforts to end the war.

The dollar index, which measures the currency against six peers,

edged lower last week on expectations that a deal between the

U.S. and Iran to reopen the Strait of Hormuz was close. The

closure of the key oil artery has lifted oil prices and worsened

the inflation outlook, leading some observers to expect the

Federal Reserve would raise rates this year.

The dollar edged higher on Monday after Iran's Tasnim news

agency said Tehran's negotiating team is stopping exchanges of

messages with the U.S. through mediators due to attacks on

Lebanon. The dollar index was last up 0.36% at 99.368

after last week's drop of 0.4%.

The greenback had rallied at the onset of the conflict,

which began on February 28, buoyed by safe-haven demand and the

U.S. economy's relatively limited exposure to energy-driven

inflation. However, it has given back some of those gains due to

uncertainty surrounding the conflict's trajectory.

The euro was down 0.44% at $1.1609, while sterling

was 0.3% lower at $1.3412.

Should the Strait of Hormuz reopen to traffic and oil

prices fall, the dollar would likely weaken in the near term and

risk-sensitive currencies, such as the Swedish crown, would

outperform, said Tommy von Bromsen, FX strategist at

Handelsbanken.

But currency markets are in wait-and-see mode after the

U.S. military said it had over the weekend struck Iranian air

defences, a ground control station and two drones that were

threatening ships after "aggressive Iranian actions," ​including

the shooting down of a U.S. drone over international waters.

Iran's Islamic Revolutionary Guard Corps said on Monday it

had targeted an air base used by the U.S. in response to an

attack on southern Iran.

FED WATCH

Markets are betting the U.S. central bank's next move will be to

raise its benchmark interest rate, compared with expectations

for a cut before the start of the Iran war, given rising energy

prices and the impact they will have on inflation, and a

still-resilient jobs market.

The release on Friday of the monthly U.S. employment report

could help sway what the Fed will do in the near term. The data

are expected to show a gain of 85,000 jobs in May and no change

in the current 4.3% unemployment rate, according to a Reuters

poll of economists.

Fed Governor Jerome Powell, whose term as head of the central

bank formally ended last month, warned in a speech on Sunday

about politicization of monetary policy. Powell has decided to

remain on the Fed's Board of Governors in part because of what

he regards as ongoing threats to the central bank's

independence.

YEN IN FOCUS

Markets are highly anticipating a speech by Bank of Japan

Governor Kazuo Ueda on Wednesday for possible signals as to

whether the central bank will proceed with a rate increase the

following week.

While there is no consensus yet within the BOJ on the decision,

a pause in the central bank's taper of government bond purchases

is increasingly seen as a preferred option, two sources familiar

with the deliberations said.

The yen weakened 0.27% to 159.715 per dollar, close to

the psychologically important 160 level that saw intervention by

Japanese authorities to strengthen the currency.

"It seems like 160 is where they draw the line," said

Handelsbanken's von Bromsen. "I think there will be intervention

if we approach that level again."

The Australian dollar traded 0.66% lower at $0.7135

against the dollar, while New Zealand's kiwi slid 1.31%

to $0.5912.