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.