* Ceasefire contingent on Iran opening Strait of Hormuz -

Trump

* Iran says it will provide safe passage through the

waterway

* Focus on whether ceasefire leads to broader resolution

* Dollar slides broadly as risk sentiment improves

(Updates to Asia afternoon)

By Ankur Banerjee

SINGAPORE, April 8 (Reuters) - Oil prices dived, stocks

surged and the dollar was knocked back on Wednesday as a

two-week Middle East ceasefire sparked a relief rally, fuelled

by hopes that oil and gas flows through the Strait of Hormuz

could resume.

The news capped weeks of market volatility and geopolitical

upheaval after U.S. and Israeli strikes on Iran at the end of

February pushed tensions to the brink, with Tehran effectively

choking off the strategic waterway that typically carries about

20% of the world's oil and gas.

U.S. President Donald Trump on Tuesday agreed to a ceasefire

with Iran, less than two hours before his deadline for Tehran to

reopen the strait or face devastating attacks on its civilian

infrastructure.

Market reaction was swift and dramatic, with U.S. crude

futures down around 15% to $96.31 a barrel, while Brent

futures also slid 13% to $95.36 per barrel.

S&P 500 futures jumped more than 2%, while European

futures leapt more than 5%. The U.S. dollar fell

broadly, having been the haven of choice during the tumult.

In Asia, Japan's Nikkei surged about 5% while South

Korea's KOSPI rose 6%, triggering a brief halt in

trading. That left the MSCI's broadest index of Asia-Pacific

shares outside Japan up 4%.

Beyond the immediate relief, investors remain keen to see

whether the ceasefire leads to a broader resolution before

placing major bets.

"Does it mean people are going to take new risks? No, it

doesn't," said Martin Whetton, head of financial markets

strategy at Westpac. "It would have to actually be a lasting

peace (to change things). People aren't actually taking risk."

The six-week conflict has sent oil prices soaring, reignited

inflation fears and thrown the global rates outlook into

disarray, forcing governments and companies to scramble for

cover against a sudden energy shock.

Trump's social media announcement marked an abrupt reversal

from hours earlier, when he issued an extraordinary warning that

"a whole civilization will die tonight" unless his demands were

met.

Charu Chanana, chief investment strategist at Saxo, said the

pivotal test is whether negotiations keep progressing over the

next two weeks - and whether insurers and tanker operators

regain enough confidence for traffic through Hormuz to run

normally again.

"That will determine whether this remains just a relief

rally or starts to look more like a durable de-escalation."

Gold prices climbed more than 2% to $4,812 per ounce.

In currencies, the risk-sensitive Australian dollar

rose 1% to $0.7050 and the euro gained 0.68% to $1.16735.

That left the dollar index at 98.956, hovering near a

one-month low.

Some analysts remain sceptical that the ceasefire will

translate into lasting peace, warning of likely twists and turns

ahead.

Carol Kong, a currency strategist at Commonwealth Bank of

Australia, said the conflict's root causes remain unresolved,

keeping the risk of re-escalation firmly on the table.

"We maintain our view that the war will run into June. The

implication is dollar losses may prove short-lived."

U.S. Treasuries rallied after the announcement with traders

putting the prospect of rate cuts from the Federal Reserve later

in the year back on the table, although doubts about whether oil

prices will go back to pre-war levels kept enthusiasm in check.

The yield on the benchmark U.S. 10-year Treasury note

dropped 9.5 basis points to 4.247%, the lowest since

mid-March. The yield on monetary policy-sensitive U.S. 2-year

Treasury notes fell to 3.727%.

"The bigger worry is that some damage may linger even with

de-escalation," said Saxo's Chanana. "The rates story can

probably shift from 'higher for longer because of war

escalation' to 'cuts may still come, but not as cleanly or as

quickly as before'."