FOREX-Dollar rises?as US-Iran divide dashes de-escalation hopes

* Dollar strengthens on waning Middle East ceasefire hopes

* Iran says diplomacy not over, but Trump unsure he is willing to make a deal

* Oil prices above $100/barrel underpin dollar

* U.S. jobless claims rise slightly, supporting Fed hold despite inflation risk (Updates to US afternoon trading)

By Laura Matthews

NEW YORK, March 26 (Reuters) - The dollar climbed against major currencies on Thursday, as signs that the U.S. and Iran remain far apart on a peace deal dashed hopes of Middle East de-escalation, revived the risk of a prolonged energy shock and boosted safe-haven demand.

An Iranian official said a U.S. proposal fell short of minimum requirements for success and served only U.S. and Israeli interest, but added that diplomacy was not over.

U.S. President Donald Trump, however, said he was unsure that he was willing to make a deal to end the war.

"The two sides appear far apart on basic negotiating terms, and Tehran has ample incentive to keep the Strait of Hormuz effectively closed to tanker traffic for now," said Karl Schamotta, chief market strategist, at Corpay in Toronto.

"The strain on global energy supplies is set to escalate sharply, and investors are positioning for dire economic consequences."

In afternoon trading, the U.S. dollar index, which measures the greenback's strength against a basket of six currencies, rose 0.35% to 99.97.

The euro fell 0.3% to $1.1524, and sterling declined 0.35% to $1.3319.

The dollar was 0.22% stronger on the Japanese yen at 159.81 yen.

As geopolitics and inflation concerns continue to steer markets, new U.S. jobless claims edged higher last week, offering no meaningful surprises and signaling a still-stable labor market. That gives the Federal Reserve room to keep rates steady while watching war-related inflation risks.

Stocks fell and oil prices advanced as investor caution grew over the uncertain trajectory of diplomatic efforts, bolstering the dollar.

Jane Foley, head of FX strategy at Rabobank in London, said markets face uncertainty as a five-day negotiation deadline approaches and the weekend looms when markets are closed.

"Given those circumstances, I think it's more than understandable... that we do see a little bit of anxiety, we do see risky assets, stock markets in the red, and markets taking some of that relief off the table," Foley said.

As the previous day's optimism waned, oil was last 5.34% higher at $107.68 a barrel.

The U.S. is a net energy exporter, unlike the euro zone, Britain or Japan. Markets are fully pricing three European Central Bank rate hikes this year, and are close to doing so from the Bank of England as well.

The ECB has "an option" to raise interest rates at its next meeting if war in the Middle East raises the specter of an inflation surge in the euro zone, policymaker Joachim Nagel told Reuters.

However, Bank of England Deputy Governor Sarah Breeden said she saw less risk of second-round inflation effects from rising energy prices caused by the Iran war than from Russia's full-scale invasion of Ukraine in 2022, due to greater labor market weakness.

"The broader central bank backdrop retains a hawkish tilt, with markets repricing the Fed toward roughly 10 bps of tightening this year, a notable shift from cuts being priced in as recently as last week," said Uto Shinohara, senior investment strategist, at Mesirow Currency Management in Chicago.

Against the Chinese yuan, the U.S. dollar rose 0.29% to 6.922 yuan in offshore trading. Trump said he will meet Chinese President Xi Jinping on May 14 and 15 following a delay due to the Iran war. (Reporting by Laura Matthews in New York; Additional reporting by Alun John in London and Gregor Stuart Hunter in Singapore; Editing by Thomas Derpinghaus, Barbara Lewis, Arun Koyyur, Colin Barr and William Maclean)