* Yen hits 160, testing intervention tolerance

* Dollar, oil set for weekly gain on Gulf tensions

* Markets await US payroll report

(Updates to Asia afternoon, adds quotes)

By Jiaxing Li

HONG KONG, June 5 (Reuters) - The Japanese yen tested

the 160 barrier on Friday, drawing sharp pushback from

officials, while the U.S. dollar was on track for a weekly gain

as tensions in the Middle East fuelled safe-haven flows.

The yen weakened to the critical 160-per-dollar mark

briefly in early trading, hitting the level for the third

straight session despite verbal warnings from authorities. The

160 threshold is widely seen as a line in the ‌sand ⁠for

potential intervention by authorities in Tokyo.

That has prompted fresh warnings, with Finance Minister

Satsuki Katayama saying Japan is ready to respond at any time on

the foreign exchange front and reserving the right to take

"decisive action" against excessive volatility.

The yen is now set for its fourth straight week of declines,

a streak not seen since February, mostly wiping out the gains

driven by intervention over the past month at a cost of $73

billion. It was last trading at 159.95 per dollar.

"Markets are probably a bit reluctant to try to test the BOJ

too much" ahead of the U.S. nonfarm payrolls report later

Friday, as authorities have shown fresh willingness to

intervene, said Khoon Goh, head of Asia research at ANZ.

He said markets need a clear catalyst to push the dollar

stronger before attempting to breach the 160 level again, adding

that an expected Bank of Japan rate hike at its June meeting

should help ease some pressure.

Japan's real wages climbed 1.9% in April from a year

earlier, government data showed on Friday, marking a fourth

consecutive monthly gain. The BOJ, which will next review its

interest rates on June 15 and 16, considers steady rises in

wages and prices as essential conditions for further rate rises.

The BOJ is expected to raise interest rates unless a sharp

escalation in the U.S.-Israeli war on Iran upends markets, as

rising fuel costs from the energy shock would add to mounting

price pressures in the economy, sources told Reuters.

GULF HOSTILITIES SUPPORT DOLLAR DEMAND

U.S. President Donald Trump's efforts to halt fighting in

the Middle East and forge peace with Tehran are facing fresh

obstacles, after the Iran-backed Hezbollah militia rejected a

new ceasefire in Lebanon on Thursday while Israel said it would

not withdraw troops from the country.

A flare-up in hostilities this week, including exchanges

between Iranian and U.S. forces, has pushed Brent futures firmly

above $90 for a weekly gain and supported the dollar on

safe-haven flows.

The euro stood at $1.1616, up 0.05% so far in Asia,

and sterling was steady at $1.34275. Both are heading

for small weekly losses.

The risk-sensitive Australian dollar was down 0.1%

at $0.71275 and the New Zealand dollar was flat at

$0.5866 with a 2% weekly advance.

The dollar index, which measures the greenback

against a basket of currencies including the yen and the euro,

was little changed at 99.412, on track for a 0.5% gain for the

week.

On the data front, markets are keenly awaiting U.S. nonfarm

payrolls, due for release later in the global day. A Reuters

survey of economists predicted an 85,000 rise in jobs in May,

slower than an increase of 115,000 in April. The unemployment

rate is expected to remain unchanged at 4.3%.