FOREX-Dollar firms as Middle East tensions keep investors on edge

* Dollar erases early losses against most major currencies

* Markets await more clarity on ​US-Iran talks

* Yen weaker ⁠despite risk of Japanese intervention

* Norges Bank rate hike supports crown

NEW YORK, May 7 (Reuters) - The dollar erased early losses to trade with a firm tone against most major currencies on Thursday as investors weighed hopes for a de-escalation in the Iran war. The ​United ‌States and Iran are edging toward a limited and temporary agreement to halt their war, according to sources and officials, with a draft framework that would stop the fighting but leave the most ⁠contentious issues unresolved.

Hopes of a deal between the two countries have buoyed global stock and ⁠bond markets since Wednesday, though sentiment took a knock on Thursday ​after the Wall Street Journal reported that Iran would not accept what it called an "unrealistic" American plan to reopen the Strait of Hormuz. About a fifth of the world's oil and liquefied natural gas ordinarily passes through the Strait of Hormuz.

The euro was about flat on the day at $1.1748 after gaining 0.47% on Wednesday, while sterling was 0.1% ​lower at $1.35785 after rallying 0.4% ‌the previous day.

"I think the market is still on edge," said Marc Chandler, chief market strategist at Bannockburn Forex.

"The pendulum had swung pretty far toward 'peace is at hand,'" Chandler added, noting that trading in the North American session was more circumspect about the prospects of a quick resolution to the conflict.

Oil prices swung between gains and losses in volatile trading on Thursday, ultimately settling lower after a report said the United States was considering restarting operations to escort commercial ships through the Strait of Hormuz ​as early as this week.

"While the Trump administration is clearly motivated to find an off-ramp in the conflict, there's little to suggest that negotiating positions have converged. More negative ‌and volatility-inducing headlines could land in the days and weeks to come," said Karl Schamotta, chief market strategist at Corpay in Toronto.

YEN MOVES

The Japanese yen eased about 0.3% against the dollar a day after having appreciated sharply with speculation that ‌Japanese authorities had again intervened in markets to buy their currency. The dollar was last at 156.79 yen. Japan may have spent as much as 5.01 trillion yen ($32.06 billion) in its latest efforts to bolster its embattled currency, central bank data indicated on Thursday, signaling repeated bouts of intervention in markets. Japan's top currency diplomat, Atsushi Mimura, said separately on ​Thursday the country was not restricted on intervention. U.S. Treasury Secretary Scott Bessent will meet Japanese Prime Minister Sanae Takaichi next week, and the Nikkei newspaper said they would discuss curbing speculative yen selling, ‌among other issues.

Analysts, however, remain cautious on the yen's outlook.

"Without stronger BOJ follow-through via consecutive hikes to address its behind-the-curve stance, the yen is likely to remain weak in the near term," said Masahiko Loo, senior fixed income strategist at State Street Investment Management.

Repeated interventions raise the likelihood of broader policy action in the June to July window, ⁠consistent with the late ⁠2024 playbook, Loo added.

RISKIER CURRENCIES SLIP Norway's crown strengthened after the central bank raised its policy rate to 4.25% ‌from 4% and said inflation was too high. The dollar hit a fresh four-year low, before recovering ground to trade little-changed on the day at 9.293 crowns.

The risk-sensitive Australian dollar eased 0.2% and last fetched $0.7222, ​just below the four-year high it touched on Wednesday. The ​Swedish crown was about 0.2% weaker at 9.2508 per dollar after Sweden's Riksbank said the risk that the ‌Iran war would lead to higher inflation had increased somewhat, though it kept its policy rate unchanged at 1.75%, as expected.

Leading cryptocurrency bitcoin slipped about 2% to $80,017, but remained not far from the more than three-month high touched in the previous session. (Reporting by Saqib iqbal Ahmed; Additional reporting by Alun John in London, Wayne Cole in Sydney and Ankur Banerjee in Singapore; Editing by Kim Coghill, Clarence Fernandez, Andrew Heavens, Will Dunham and Andrea Ricci)