EMERGING MARKETS-War worries batter emerging market stocks, S.Africa's rate decision looms

* South Africa expected to keep rates steady

* Poland weighs VAT cut for fuel

* EM stocks fall 1.6%, FX down 0.4%

By Pranav Kashyap

March 26 (Reuters) - Most emerging market stocks retreated sharply on Thursday as investors fled riskier assets and waited for clearer signs on whether a de-escalation in the Iran war was truly within reach.

U.S. President Donald Trump said Iran was eager to strike a deal after nearly four weeks of fighting, a claim that stood in stark contrast to comments from Iran's foreign minister, who said Tehran was reviewing a U.S. proposal but had no plans to enter talks aimed at winding down the conflict.

"Market attention is quickly turning to the end of Trump's 5-day deadline," Deutsche Bank's Jim Reid said. "There's still plenty of doubt.. given how Iran have publicly rejected the US on several occasions."

In South Africa, stocks tumbled nearly 2%, while the rand weakened 0.4% ahead of the central bank's interest-rate decision, where policymakers are widely expected to leave the rates unchanged at 6.75%.

That anticipated pause comes as annual inflation eases back toward the central bank's target, but economic growth remains sluggish.

The path for rates will be closely watched as policymakers try to revive momentum without reigniting price pressures, especially as an energy-driven inflation shock keeps the South African Reserve Bank - and many of its emerging-market peers - in an increasingly uncomfortable bind.

Mexico's central bank is also expected to stand pat later in the day.

A broad index tracking emerging-market equities dropped 1.6%, wiping out much of the previous session's rebound. The index is down more than 10% this month and now clings to gains of just 3% for the year, surrendering much of the strong start it enjoyed early on.

"Despite recent volatility from geopolitical tensions and higher oil prices, we maintain a constructive outlook on EM equities," UBS analysts said.

Poland's zloty attempted to edge higher but was stuck in a narrow range, while stocks fell as investors weighed the prospect of a fuel tax cut aimed at easing prices at the pump - a move in a country that is already grappling with one of the European Union's widest budget deficits.

Other central and eastern European currencies were similarly subdued.

Hungary, on Wednesday, said it would gradually halt natural gas shipments to Ukraine until crude flows through the Druzhba pipeline resume. Kyiv's international dollar bonds slipped by about a cent.

From Warsaw to New Delhi, Sao Paulo to Seoul, governments across the emerging world have been scrambling to shield their economies from the fallout of a war that is nearing the one-month mark.

With the crucial Strait of Hormuz shut, oil prices have surged wildly, rattling markets and forcing a dramatic rethink among emerging-market central banks.

At the start of the year, a few, like Hungary and Brazil were preparing to cut interest rates. Now, with war-fuelled inflation risks mounting, they are being forced to consider whether the next move may need to be in the opposite direction. (Reporting by Pranav Kashyap in Bengaluru; Editing by Arun Koyyur)