(Updates to Asia afternoon)

* Hopes of Strait of Hormuz opening lift risk assets

* Nikkei surges to record high, U.S. stock futures gain

* Dollar stumbles as investors move out of safe haven;

oil slides

* Conflicting messages on peace deal keep enthusiasm

grounded

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.

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."

European futures rose 1%, pointing to a strong

open, while Nasdaq futures were 1.4% higher and S&P

futures were up 1%. Liquidity is likely to be thin as

markets in the U.S. and UK are closed on Monday.

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 about 6% to $97.75 a

barrel, while U.S. West Texas Intermediate was at $90.87

a barrel, also down nearly 6%.

Analysts expect oil prices to remain elevated even if there is a

resolution in the near term, and they are unlikely to return to

levels before the war as it will take time to remedy supply

chain disruption from the conflict.

Last week Barclays maintained its 2026 average Brent crude

oil price forecast at $100, though it said risks are skewing

higher.

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.

In Asia, Japan's Nikkei jumped 3% to roar past the

65,000 level for the first time and Taiwan stocks also

jumped to a record high. MSCI's broadest index of Asia-Pacific

shares outside Japan rose 1%.

Global stocks have mostly shrugged off war worries and

instead have focused on all things AI and a strong earnings

season, which has led to equities hitting record highs through

the year.

RATE EXPECTATIONS RESET

The increase in energy prices since the conflict began and the

risk that prolonged disruptions will keep them high has prompted

traders to bet on 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 were up a full point.

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 was 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.