(Updates prices, adds analyst comment)

* Yen nears 160 key level, traders monitor Iran war risks

* Kiwi jumps after RBNZ strikes hawkish tone

* Australian dollar slips as inflation cools

* Dollar index edges higher, sterling and euro fall

By Amanda Cooper and Chibuike Oguh

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

weakest level in nearly four weeks on Wednesday, edging closer

to levels that prompted Japanese authorities to intervene last

month, as investors assessed renewed tensions in the Iran war.

The yen dropped 0.14% to 159.51 per dollar, its

weakest since April 30, when authorities stepped in to support

it. Traders widely see the 160 mark as a key trigger for

intervention after the yen crossed that level 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," Epstein

said.

Markets are pricing a roughly 70% chance of a quarter-point

interest rate hike at the BOJ's June 15-16 policy meeting, LSEG

data showed.

DOLLAR STEADIES

President Donald Trump said the U.S. and Iran still have issues

to resolve in peace talks, after Washington dismissed an Iranian

state television report of a framework deal to restore shipping

through the Strait of Hormuz within a month and to lift a U.S.

naval blockade on Iranian ships.

The safe-haven dollar steadied, extending gains from the

prior session, as hopes of a swift end to the war have waned in

the wake of fresh hostilities.

The euro was a shade lower at $1.163125, while the

pound was down 0.11% at $1.34320.

The dollar was up 0.13% to 0.7866 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.

KIWI SHINES

The New Zealand dollar outperformed, rising after the central

bank came unexpectedly close to raising interest rates and

signaled that further tightening may be needed sooner and more

aggressively than previously expected.

The Reserve Bank of New Zealand left its overnight cash rate

unchanged in a split decision, with three members voting for a

quarter-point hike and three opting to hold.

The kiwi rallied 1.11% to $0.59, rebounding from a

loss in the earlier session.

The Australian dollar slipped 0.35% to $0.71415,

reversing earlier gains after data showed annual inflation

cooled to 4.2% in April.

The Australian dollar dropped sharply against the Kiwi

, falling 1.39% to $1.202, making it the biggest daily

decline in nearly a decade.