* Investors sit tight as Iran says to review U.S.

proposal

* Stocks struggle for direction, dollar hangs on to gains

* Markets remain worried about energy price shocks

By Ankur Banerjee

SINGAPORE, March 26 (Reuters) - Asian stocks struggled

for direction while the dollar held firm on Thursday as

investors treaded cautiously amid dizzying developments in the

Middle East, where Iran said it would weigh a U.S. proposal to

end the Gulf conflict.

The widening war has jolted global markets, sending oil

prices soaring, reigniting inflation fears and scrambling global

rate expectations.

It was a mixed picture in Asia in early trading with Japan's

Nikkei up 0.6% while South Korean stocks were

down 1.2%. MSCI's broadest index of Asia-Pacific shares outside

Japan edged 0.23% lower, set for a 8.7% decline

in the month, its biggest monthly drop since October 2022.

The dollar held firm near recent highs and was on track for

a 2% monthly gain, cementing its status as the markets'

preferred safe haven.

The latest comments by Iran suggested some willingness by

Tehran to negotiate an end to the war if its demands were met.

The U.S. sent a 15-point ceasefire proposal to Iran that was

originally brushed aside by Iranian officials.

"While the headline flow points to a more constructive tone,

markets remain unsure which signals to trust and act upon,"

Chris Weston, head of research at Pepperstone, said.

"Price action suggests participants expect further twists

and turns, even as the probability of a negotiated outcome edges

higher."

The near month-long war triggered by joint U.S.-Israeli

strikes on Iran in late February has effectively shut the Strait

of Hormuz, a conduit for a fifth of global oil and liquefied

natural gas flows.

The disruption has sent prices surging above $100 per

barrel. Brent crude futures were at $103.35 per barrel,

up 1% on the day, and set for a 42% jump in the month.

"If you look at what the U.S. wants to achieve, what Israel

wants to achieve, and what Tehran wants to achieve, it will be

very hard to reconcile all these points," said Matthias

Scheiber, senior portfolio manager and the head of the Multi

Asset team at Allspring Global Investments.

"We still think there is a case to make for structurally

higher energy prices for the moment."

Fears of an inflationary aftershock from soaring energy

prices have pushed traders to price out any chance of a Federal

Reserve rate cut this year, lifting the dollar. Bets on U.S.

rate hikes briefly gained traction but have since been pared

back.

European Central Bank President Christine Lagarde opened the

door on Wednesday to raising interest rates in the euro zone if

war in the Middle East pushes up inflation in the region for

some time.

"If the shock gives rise to a large though

not-too-persistent overshoot of our target, some measured

adjustment of policy could be warranted," Lagarde said in

Frankfurt.

The euro was little changed at $1.1562, while

sterling bought $1.3358. The yen hovered at 159.43

per dollar, clinging to the closely watched 160 level that

traders see as a potential trigger for intervention.

In commodities, gold was 0.66% higher at $4,537 per

ounce, but has largely sold off this month and is on course for

a 14% drop in the month, its steepest fall since October 2008.