* Renewed US-Iran hostilities help support safe-haven dollar

* Pound set for 3rd straight weekly rise on easing fiscal

worries

* Yen languishes near 40-year lows as intervention watch

goes on

(Updates prices throughout, analyst comments, byline; adds NEW

YORK dateline)

By Harry Robertson and Laura Matthews

LONDON/NEW YORK, July 17 (Reuters) - The dollar was flat on

Friday, on track for a weekly decline as tame U.S.

inflation data led traders to cut bets on imminent rate hikes

from the Federal Reserve.

Iran and the United States exchanged intensifying fire in a

week-long escalation that has largely unravelled last month's

truce, spurring safe-haven bids for the dollar and pushing oil

prices to near one-month highs.

Meanwhile, U.S. consumer sentiment climbed to a five-month

high in July, although traders said the respite may prove

temporary with renewed conflict in the Middle East driving up

gasoline prices.

"The tech-led global equity market plunge and ongoing

disruption to Strait of Hormuz traffic have triggered a flight

to safety," said Elias Haddad, global head of markets strategy

at Brown Brothers Harriman. "USD recovered some of this week's

losses, and global bond yields edged a bit lower."

The euro was flat at $1.1437 and was set for a 0.2%

rise in the week.

Sterling fell 0.23% to $1.3449, but was on course for

its third straight week of gains. The rise has reflected UK

economic growth and greater political certainty, with Andy

Burnham set to become prime minister on Monday and reports

indicating he will pick a centrist finance minister.

The Australian dollar was poised for a third week of

gains, although it was 0.24% softer on the day at $0.6979 as

risk-off sentiment prevailed, with global stocks falling on

Friday.

THE RISK OF INTERVENTION

The Japanese yen was flat, fetching 162.35 per U.S.

dollar, remaining rooted near the 40-year low of 162.84 it

touched at the start of the month.

Traders remained wary of official intervention from Tokyo

after Japanese Finance Minister Satsuki Katayama reiterated the

government's readiness to take decisive action.

"We seem to sort of hit DEFCON 1 in terms of the verbal

warnings for the yen overnight with the latest round of

comments," said Shaun Osborne, chief FX strategist at

Scotiabank in Toronto.

"We've had very significant, if not record, intervention in

support of the yen, and here we are with dollar/yen still stuck

at 162 and change. It appears as if the risk of intervention in

the relatively near future is quite high again."

The dollar index, which measures the U.S. currency

against six other units, was at 100.73, set for a weekly drop of

0.2%.

The index hit a one-month low earlier this week on easing

chances of a near-term rate hike but safe-haven flows have

helped support the greenback.

ECONOMIC RESILIENCE

Data on Thursday showed U.S. retail sales rose slightly in

June as lower gasoline prices weighed on receipts at service

stations. But online spending surged, prompting economists to

upgrade their second-quarter growth estimates.

The economy's resilience was underscored by other data also

showing labour market stability. Economists believe the Federal

Reserve will keep interest rates unchanged later this month

after data showed consumer price inflation had cooled in June.

Yet policymakers are also wary of banking too heavily on one

month of improvement after months when inflation moved in the

wrong direction.

Chances for a Fed hike in July stood at 10%, versus a 25%

implied probability last week, according to the CME FedWatch

tool. Traders are pricing in 28 basis points of hikes by

December.

"I still think that the front end of the swaps curve is very

overpriced for Fed tightening. I don't see a rate hike this side

of Christmas," said Osborne.