* Hopes of Strait of Hormuz opening lifts risk assets

* Nikkei surges to record high, US stock futures gain

* Dollar stumbles as investors rush out of safe haven;

oil slides

* Conflicting messages on peace deal keeps enthusiasm

grounded

(Updates to Asia morning)

By Ankur Banerjee and Ruth Chai

SINGAPORE, May 25 (Reuters) - Stocks surged on Monday

while the U.S. dollar and oil prices slid as the prospect of a

deal to end the Iran war buoyed risk appetite although a lack of

clarity over when the Strait of Hormuz would open kept

enthusiasm in check.

The nearly three-month-long conflict in the Middle East has

driven energy prices sharply higher and reshaped the global

rates outlook, as inflation concerns intensify following

Tehran's effective shutdown of the key strait through which a

significant share of the world's energy flows.

U.S. President Donald Trump said on Sunday he had told his

representatives not to rush into any deal with Iran, as his

administration played down hopes of an imminent breakthrough.

Just a day earlier, Trump said Washington and Iran had

"largely negotiated" a memorandum of understanding on a deal

that would reopen the waterway, which carried one-fifth of

global oil and liquefied natural gas shipments before the war.

Chris Weston, head of research at Pepperstone, said markets

have become less focused on the timing of a resolution and

instead been keeping an eye on the tone of the headlines.

"The tone has been consistently towards some sort of

resolution... We've become very patient for a resolution

deadline."

OIL PRICE SETS THE TONE FOR MARKETS

For much of the year, oil prices have steered broader

markets as investors sift through often conflicting signals from

Washington and Tehran, with both sides locked in negotiations

since a fragile ceasefire took hold in April.

On Monday, oil prices hit two-week lows to kickstart the

week with Brent crude futures down over 4% to $98.83 a

barrel, while U.S. West Texas Intermediate was at $92.03

a barrel, also down over 4%.

The euro was up 0.33% at $1.1646, while the Japanese yen

firmed to 158.85 per U.S. dollar as the safe-haven dollar gave

up some of its recent gains.

Nasdaq futures were 1.2% higher and S&P futures

were up 0.7%. Japan's Nikkei jumped 3% to roar

past the 65,000 level for the first time. MSCI's broadest index

of Asia-Pacific shares outside Japan rose 1%.

Nick Twidale, chief market analyst at ATFX Global, expects

the market to embrace more risk during the session but a

sustained surge is unlikely until there is confirmation that the

Strait of Hormuz will reopen.

"We will need to see an agreement out in place in the coming

sessions as we know there are still some major sticking points,"

he said.

Liquidity is likely to be thin as markets in the U.S., UK,

Hong Kong and South Korea are closed.

RATE EXPECTATIONS RESET

Prolonged energy disruptions from the conflict risk pushing

up prices worldwide, prompting traders to bet on further rate

hikes across both developed and emerging markets.

Markets are now fully pricing in a 25-basis-point hike from

the U.S. Federal Reserve in January 2027, a sharp shift from

expectations before hostilities erupted in late February, when

two rate cuts this year were anticipated.

The 30-year Treasury bond's yield, which is seen

as a barometer of geopolitical and fiscal risk, briefly touched

its highest level since July 2007 last week but has pulled back

from that milestone. There was no cash trading on Monday but

30-year futures climbed 17 ticks.

Data on Friday showed U.S. consumer sentiment fell to a

record low in May as surging gasoline prices linked to the Iran

war intensified affordability concerns just as Kevin Warsh was

sworn in as chair of the Fed.

Mark Dowding, CIO for Fixed Income at RBC BlueBay Asset

Management, said Warsh is likely to look past near-term elevated

price data, but warned that the risk of a rate hike will

continue to build as long as inflation remains on an upward

trajectory.