FOREX-Dollar struggles to rebound as fragile US-Iran ceasefire keeps markets wary

(Updates with U.S. morning trade)

* Euro, sterling marginally higher as doubts persist over US-Iran ceasefire

* Yen weakens, fiscal expansion concerns also in mix

* Ceasefire seen as fragile amid ongoing Israel-Hezbollah conflict

By Hannah Lang and Alun John

LONDON/NEW YORK, April 9 (Reuters) - A fragile calm reigned across currency markets on Thursday as traders kept their eyes fixed on whether the ceasefire between the U.S. and Iran would hold, a day after its announcement sent the dollar tumbling across the board.

The deal appeared to be on thin ice, as Israel bombed more targets in Lebanon, and there was no sign Iran had lifted its blockade of the Strait of Hormuz, which has caused the worst disruption to global energy supplies in history.

Iranian negotiators were expected to set off later on Thursday for Pakistan for the first peace talks of the war, but Tehran said there would be no deal as long as Israel was striking Lebanon. President Donald Trump said all U.S. ships, aircraft, and military personnel would stay in place in and around Iran until it fully complied with a deal.

The uncertainty left currency markets on edge.

The euro was up 0.17% at $1.1683. It had gained 0.6% on Wednesday, but retreated late in the day having touched a one-month high of $1.1721 earlier in the session.

Sterling similarly was 0.21% higher at $1.342, after gaining 0.77% on Wednesday, but retreating from as high as $1.348.

Meanwhile, the Japanese yen lost some ground, with the dollar up 0.3% at 159.055 yen, having briefly dropped below 158 on Wednesday.

With the Strait of Hormuz closed, "the entire ceasefire remains tenuous," said Derek Halpenny, head of research global markets EMEA at MUFG. But, he added, "while the U.S. dollar has rebounded, the moves in general have been modest."

He said the fact that further talks scheduled in Pakistan were still going ahead was keeping any retracement of Wednesday's moves in check.

Elsewhere, new personal spending data released on Thursday showed that U.S. inflation increased as expected in February and likely rose further in March amid the war with Iran, a trend that is expected to discourage the Federal Reserve from cutting interest rates for a while.

The personal consumption expenditures price index ?climbed 0.4% after an unrevised 0.3 gain in January, the Commerce Department's Bureau of Economic Analysis said ?on Thursday.

Japan's consumer confidence worsened in March for the first time in three months, a government survey showed on Thursday, adding to a recent string of data pointing to the potential economic hit from the Middle East war, which would complicate the Bank of Japan's rate-hike decision. The yen showed little reaction to the data. Speaking in parliament, BOJ Governor Kazuo Ueda said real interest rates were clearly negative and were keeping the country's financial conditions accommodative.

Other currencies were also broadly steady. The Australian dollar was 0.15% higher at $0.7054, while the New Zealand dollar was 0.46% higher at $0.585. In cryptocurrencies, bitcoin was last down 0.97% at $70,680.

(Reporting by Hannah Lang in New York and Alun John in London; Additional reporting by Satoshi Sugiyama in Tokyo Editing by Shri Navaratnam, Kim Coghill, Gareth Jones and Sharon Singleton)