* Yen hands back half its intervention boost

* Weekly drop is largest since previous intervention faded

* Dollar balances oil gains with retreating rate hike bets

SINGAPORE, Aug 14 (Reuters) - The yen headed for its biggest

weekly loss in three months on Friday as the impact of U.S. and

Japanese intervention faded, leaving traders to wager another

round of official buying would be needed to stem the rot.

The currency has surrendered roughly half the gains sparked

by intervention in late July and early August, falling about 1%

this week to 159.43 per dollar. It was trading near 164

per dollar before July's intervention and traders see the 160

level as a potential trigger for fresh official action.

The yen's retreat is set to be its biggest weekly drop since

May, when it was also backsliding after a round of official

buying. A fall of about 0.8% to 183.91 yen per euro

this week is the largest since April.

The Japanese currency was stable early on Friday but has

been falling for years, and was at near four-decade lows before

the intervention, on a combination of perennially low interest

rates and newer confidence concerns around government spending

and funding.

The broader currency market has been fairly steady this

week, with support for the dollar from higher oil prices and

Middle East tension offset by benign U.S. jobs and inflation

reports that reduced expectations for U.S. interest rate hikes.

Overnight figures showing unchanged U.S. producer prices in

July further supported dialling back bets on a September hike,

now seen as a roughly 35% chance.

The euro edged 0.2% lower to $1.1536 this week while

sterling was flat at $1.3489. A surprisingly low

inflation expectations reading knocked the New Zealand dollar

on Thursday, but it bounced back as the swap market stuck

with an 85% chance of a rate hike in September.

The Australian dollar hovered at $0.7060.

THE ONUS IS ON BOJ

Japan may conduct more joint yen intervention "at any time"

and signal the chance of faster-than-expected interest rate

hikes to stem further falls, Tokyo's former top currency

diplomat Mitsuhiro Furusawa told Reuters in an interview.

Markets have already bet on the Bank of Japan raising rates

further and sooner than previously expected after U.S. Treasury

Secretary Scott Bessent said Japan should reinforce currency

intervention with policies and fundamentals that underpin the

yen.

"It's not much of a surprise that the yen has retraced,"

said OCBC strategist Sim Moh Siong.

"Because for the intervention to change the yen trend, we

need to see a more hawkish BOJ stance, which the market is

trying to price in, but at the same time, we need validation,"

he said. "The onus is on BOJ to step up."

Markets currently see a 76% chance of a BOJ hike in

September, according to Tokyo Tanshi data, a dramatic increase

compared with 24% on July 30, but one which also opens the door

to yen falls if investors are disappointed.

China's yuan hovered at 6.7452 in offshore trade on

Friday, not far from a 3-1/2-year high touched last week.

South Korea's won, which was also supported by

official intervention as authorities sold dollars in concert

with Japan last month, has held steadier than the yen though was

set to notch a modest loss of 0.6% on the dollar this week.

"Interventions, to me, even if they're coordinated, even if

they are quite powerful, are at best temporary, and at worst an

invitation for the market to challenge them," said Omar Slim,

co-head of Asia public fixed income at MetLife Investment

Management.