* Yen nears 160 key level, traders monitor Iran conflict

risks

* New Zealand dollar jumps after RBNZ signals possible

earlier, larger rate hikes

* Australian dollar slips as inflation cools, reducing

rate hike expectations

* Dollar index edges higher, sterling and euro fall

(Updates headline, paragraph 1, and prices throughout, adds

analyst comment)

By Amanda Cooper and Chibuike Oguh

NEW YORK/LONDON, May 27 (Reuters) - The yen fell to its

weakest in nearly four weeks against the U.S. dollar on

Wednesday, inching towards levels that triggered official

Japanese intervention last month, as markets weighed a renewed

flare-up in the Iran war.

The yen was steady at 159.40 per dollar, its weakest

since April 30, when Japanese authorities stepped in to buy the

currency. The 160 level is widely seen by traders as a threshold

for intervention after the yen crossed it last month.

"They've intervened formally and the market is fully calling

their bluff," said Eugene Epstein, head of structuring for North

America at Moneycorp in New Jersey.

"This is not the first time this has happened. In the past

this exact playbook plays out: they intervene and the market

says 'we don't believe you' and they intervene again and the

market says 'we believe you this time'. I would argue that the

market will most likely test the Bank of Japan again."

BOJ Governor Kazuo Ueda struck a somewhat hawkish tone on

Wednesday, saying a war-driven oil shock could become persistent

in an environment of high inflation expectations and rising

wages.

Markets are pricing in a 70% chance of a quarter-point hike

at the BOJ's next policy meeting on June 15 to 16, according to

LSEG data.

DOLLAR STEADIES

The safe-haven U.S. dollar steadied after edging higher

against other major currencies a day earlier, as the latest U.S.

strikes on Iran dented optimism for a near-term end to

hostilities and a reopening of the crucial Strait of Hormuz

shipping channel.

U.S. Secretary of State Marco Rubio said negotiating a deal

to halt the conflict could "take a few days."

The euro was a shade lower at $1.1628, while the

pound was down 0.16% at $1.343.

The dollar was up 0.15% to 0.787 against the Swiss franc

.

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

against the yen and five other peers, was little changed at 99.2

and on track for a second straight day of gains.

NEW ZEALAND DOLLAR SHINES

The New Zealand dollar was among the strongest performers,

jumping after the Reserve Bank came unexpectedly close to

raising interest rates and signalled rates would most likely

need to increase sooner and by more than previously envisaged.

The New Zealand dollar rallied 1% to $0.588,

recouping a 0.6% loss from Tuesday.

The RBNZ kept the overnight call rate steady in a split

decision, with three members voting for a quarter-point increase

and three opting to hold. Governor Anna Breman cast the deciding

vote.

The Australian dollar slipped 0.56% to $0.7127,

reversing earlier gains after data showed annual inflation

cooled to 4.2% in April.