SINGAPORE, July 10 (Reuters) - The battered yen languished near a 40-year low and was on track for a weekly loss on Friday, keeping traders wary of potential intervention from Japanese authorities as renewed Gulf hostilities loomed over markets.

Overnight investors seemed to brush off flaring tensions in the U.S.-Iran war as oil fell and stocks rallied, though currencies were mostly rangebound. But the fracturing of a fragile ceasefire between the two parties has once again cast a cloud over the outlook for energy prices and global inflation.

"The specter of war still hangs over sentiment," said Thierry Wizman, global FX and rates strategist at Macquarie Group.

"The question confronting traders is whether Iran is willing to return to large-scale kinetic war with the U.S. and its allies if necessary to strengthen its claim of control over the Strait of Hormuz."

The dollar eased a touch on Friday but was set to end the week little changed, with renewed safe-haven gains offset by receding expectations of a Federal Reserve rate hike.

Against the yen, the dollar stood at 162.36, not far from a four-decade peak hit last week, and was headed for a weekly gain of more than 0.5% against the Japanese currency.

Traders have been on intervention watch for weeks as the yen continues to struggle on the weaker side of 160 per dollar, though a possible new approach to currency-buying by Japanese officials has made it harder to anticipate when such a move might come.

"While intervention risks remain top-of-mind as a tactical consideration, we have argued that without a change in the fundamental macro backdrop - higher-for-longer U.S. yields, low recession risk, and lingering fiscal concerns in Japan - the yen will likely continue to steadily weaken in the months ahead," said analysts at Goldman Sachs.

"This helps place the yen as a top funding candidate over longer horizons."

The British pound hovered near its strongest level against the yen since 2007 in early Asia trade, having scaled a peak of 218.00 yen overnight, while the euro last bought 185.64 yen, up 0.6% for the week thus far.

Japan's Economy Minister Minoru Kiuchi said on Friday the government would never convey in advance its preference on how the Bank of Japan should set interest rates.

In other currencies, the euro edged 0.02% higher to $1.1433. Sterling rose 0.03% to $1.3413 and was set to rise 0.45% for the week.

The Australian dollar bought $0.6939, while the New Zealand dollar was up 0.08% to $0.5759.

The kiwi was headed for a weekly gain of more than 0.9%, after the Reserve Bank of New Zealand (RBNZ) hiked rates this week and signalled further tightening ahead.

Westpac expects the RBNZ to raise rates by 25 basis points in September and December, and forecasts the cash rate to peak at 4% in September 2027.

"The exact timing of the tightening profile is highly uncertain and even the tightening we forecast at the September 2026 meeting should not be regarded as a done deal," said Kelly Eckhold, Westpac's chief economist.