FOREX-US dollar surges as Middle East war sends oil to cusp of $120

* Dollar in high demand as investors scramble for liquidity

* Euro, sterling tumble; yen languishes near 159 per dollar

* Inflation risks stall bets for central bank rate cuts

By Jiaxing Li and Rae Wee

SINGAPORE, March 9 (Reuters) - The U.S. dollar jumped on Monday as soaring oil prices sent investors scrambling for cash on worries that a protracted Middle East war could severely disrupt energy supplies and hurt global growth.

The greenback pared some gains in the Asian afternoon on a Financial Times report that the G7 finance ministers will discuss on Monday a joint release of oil from emergency reserves coordinated by the International Energy Agency, which sent oil prices retreating slightly after they earlier spiked to just shy of $120 per barrel.

Still, the euro and sterling were left trading 0.6% and 0.7% lower, respectively, while the Aussie and even the safe-haven Swiss franc similarly weakened.

"The U.S. dollar is finding no shortage of support from traditional haven considerations and obviously, the United States' net energy exporter status in sharp contrast to most of Europe," said Ray Attrill, head of FX strategy at National Australia Bank.

The broad market rout triggered indiscriminate selling across assets on Monday.

Stocks, bonds and precious metals slid as investors, spooked by the impact of surging oil prices on global inflation and economic growth, turned risk-averse and cashed in on some of their most profitable trades.

"The longer this goes on, the more exponential the damage becomes in a domino effect, which is exactly what oil is now showing to a market that saw some takes last week that things could be a lot worse," said Michael Every, senior global strategist at Rabobank.

"If we are still in the same position this time next week, things could be quite terrifying."

The euro was down 0.6% at $1.1548, having slid to a 3-1/2-month low earlier in the session, while sterling slid 0.7% to $1.3333.

Against the Swiss franc, the dollar was up 0.43% at 0.7795. The Australian and New Zealand dollars pared earlier losses to trade 0.35% and 0.1% lower, respectively.

Analysts have said Asia could bear the brunt of the energy price shock, due to the region's heavy reliance on oil and gas from the Middle East.

The dollar was a whisker away from the 159 yen level in Asia, rising 0.4% to 158.47, and it gained 0.26% against the South Korean won to 1,485.50, having been up as much as 1% earlier in the session.

"The real question is how high and how long prices stay elevated, because that's what will ultimately determine the economic fallout," said Deepali Bhargava, regional head of research for Asia-Pacific at ING.

"A prolonged conflict, coupled with continued currency weakness, would feed more directly into inflation pressures across the region."

Iran on Monday named Mojtaba Khamenei to succeed his father as Supreme Leader, signaling that hardliners remain firmly in charge in Tehran a week into the war.

The conflict has already led to the suspension of around one fifth of global crude and natural gas supplies, as Tehran targets ships in the vital Strait of Hormuz between its shores and Oman, and attacks energy infrastructure across the region.

Qatar's energy minister told the Financial Times on Friday he expects all Gulf energy producers to shut down exports within weeks, a move he said could drive oil to $150 a barrel.

High energy prices act like a tax and can also stoke inflation, leaving investors worried that central bankers may be reluctant to cut interest rates.

Surprisingly weak U.S. jobs data on Friday briefly stalled dollar gains and raised expectations for U.S. rate cuts, but that faded somewhat by Monday, with traders now pricing in less than 40 basis points worth of easing by the end of the year.

"I think a spike in inflation from higher oil prices will divide the Fed," said Kyle Rodda, senior financial market analyst at Capital.com.

"Ultimately, the dynamic will likely delay any move from the Fed because policymakers will want time to review the impacts of any oil shock and how it influences the data." (Reporting by Tom Westbrook in Singapore and Jiaxing Li in Hong Kong; additional reporting by Rae Wee in Singapore; Editing by Kevin Buckland and Thomas Derpinghaus)