* Japan's Nikkei catches up on AI rally, surges to a

record

* Oil nurses losses on peace hopes, still above pre-war

levels

* Yen stable after spikes, intervention jitters persist

* Investors retreat from safe havens, dollar drifts lower

(Updates to Asia afternoon)

By Ankur Banerjee

SINGAPORE, May 7 (Reuters) - Asian stocks soared to

record highs on Thursday while the U.S. dollar slipped and oil

nursed steep losses on the prospects of a U.S.-Iran peace deal,

even as the fate of the critical Strait of Hormuz appeared

unresolved.

Japan's Nikkei returned from a long holiday to cross

62,000 for the first time, catching up on a blistering AI-led

rally after robust earnings that also catapulted South Korean

and Taiwan stocks to records.

MSCI's broadest index of Asia-Pacific shares outside Japan

rose 1%, hitting a record high. European stock

futures pointed to a subdued open after the

pan-European STOXX 600 rose 2% on Wednesday.

An Iran deal would be a breakthrough, so the sparkling

market reaction on Thursday was justified, Kyle Rodda, senior

financial analyst at Capital.com, said.

"But we've seen this story before, and the rug could get

pulled out of the market pretty quickly too. Ultimately, if we

keep seeing progress in talks, Asian markets will keep

rallying."

Iran said it was reviewing a peace proposal that sources

said would formally end the war while leaving unresolved the key

U.S. demands that Iran suspend its nuclear program and reopen

the Strait of Hormuz, whose closure has sent oil prices surging.

A potential deal to end the war sent oil prices sliding

nearly 8% on Wednesday. Brent crude edged back up on

Thursday to $102.11 a barrel.

Still, oil prices are around 40% higher than they were when

the conflict began at the end of February, while 10-year

Treasury yields are around 40 bps higher,

underscoring the challenge facing the global economy from higher

energy prices and their resultant pricing pressures.

Nick Twidale, chief market strategist at ATFX Global, said

the market is still wrestling with execution risk, "both in

terms of whether a deal is finalised and how quickly disrupted

flows would normalise even if it is."

"WTI volatility highlighted this tension, with a sharp

intraday sell-off followed by partial recovery into the close."

The rocketing oil prices whacked global markets in March but

a fragile ceasefire and the prospect of a deal have spurred a

risk-on rally since April that has been fuelled further by

strong earnings reports from technology companies.

S&P 500 companies are on track for their strongest profit

growth in more than four years, while blowout earnings from

Samsung, SK Hynix and TSMC in

Asia have added to the upbeat sentiment.

Investors are awaiting the U.S. non-farm payrolls report on

Friday, with jobs expected to have increased in April by 62,000

after rebounding 178,000 in March, a Reuters survey of

economists shows.

Federal Reserve officials said the war is raising the risk

of a sustained inflation shock, with continued high oil prices

and developing concerns about problems with global supply

chains.

YEN STAYS IN SPOTLIGHT

In currency markets, the euro held on to its

overnight gains of around 0.5% and last fetched $1.1747.

Sterling was at $1.3591 after rising 0.4% on

Wednesday. The dollar index, which measures the U.S.

currency against six units, was at 98.032.

The yen remains in the spotlight after spikes in

recent sessions prompted market speculation that Tokyo had

intervened to support the long-battered currency.

The yen last fetched 156.29 per dollar, little changed on

the day, having hit a 10-week high of 155 on Wednesday in the

latest price spike.

"Intervention alone is unlikely to shift the broader trend

unless backed by stronger policy support like a more assertive

BOJ hiking cycle or better alignment with external drivers such

as lower oil prices and U.S. yields," OCBC analysts said in a

note, maintaining a year-end target of 155.

Japan's top currency diplomat said on Thursday the country

faces no constraints on how often it can intervene and is in

daily contact with U.S. authorities.

The remarks by Atsushi Mimura, the vice finance minister for

international affairs, came ahead of a visit to Tokyo next week

by U.S. Treasury Secretary Scott Bessent, who analysts say is

expected to discuss yen moves with his Japanese counterpart,

Satsuki Katayama.