FOREX-Dollar firms, yen steady as markets weigh Iran war, split BOJ decision

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* BOJ holds rates steady in split vote

* Euro and Swiss franc lose ground against dollar

* Dollar index edges higher after two-day losing streak ahead of Fed meeting

By Chibuike Oguh and Sophie Kiderlin

NEW YORK/LONDON, April 28 (Reuters) - The dollar strengthened on Tuesday as risk-off sentiment driven by the Iran war outweighed a brief yen rally sparked by the Bank of Japan's most divided policy vote under Governor Kazuo Ueda. The BOJ held its policy rate steady at 0.75%, but the 6-3 vote - the biggest internal divide of the Ueda era - boosted expectations of a June rate hike. The yen initially firmed on the decision before reversing after Ueda's press conference cast doubt on the growth outlook, leaving the currency little changed at 159.65 against the dollar and 186.72 against the euro.

Three dissenting members - Nakagawa, Takata and Tamura - proposed raising the policy rate to 1%, arguing that war-driven energy disruptions through the Strait of Hormuz had skewed inflation risks sharply to the upside. Meanwhile, U.S. President Donald Trump discussed a new Iranian proposal on resolving the war with his top national security aides on Monday. But a U.S. official said later that Trump was unhappy with the proposal because it did not address Iran's nuclear programme.

The euro was down 0.17% at $1.1694. The dollar strengthened 0.6% to 0.79 against the Swiss franc. The U.S. dollar index snapped a two-day losing streak to trade 0.2% higher at 98.66.

"We're having the traditional risk-off correlations since the Iran war - a rise in oil prices, a stronger dollar, higher U.S. yields, lower Fed rate cut expectations, and lower gold," said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey.

Brent rose 3% to $111.47 per barrel. The benchmark S&P 500 index fell 0.75%. U.S. Treasury yields were higher across the board, with the yield on benchmark U.S. 10-year notes up 2.2 basis points to 4.358%. Spot gold fell 2.34% to $4,572.26 an ounce.

FED TRANSITION IN FOCUS Markets are also watching Wednesday's Federal Open Market Committee meeting, widely expected to be Jerome Powell's last as chair. Senator Thom Tillis on Sunday dropped his blockade of Fed chair nominee Kevin Warsh after the Justice Department ended its criminal investigation of Powell.

The U.S. Senate Banking Committee is scheduled to vote Wednesday on Warsh's confirmation, and with Tillis' support the outcome is all but assured ahead of Powell's term expiring on May 15.

Warsh is expected to push quickly for rate cuts, though rising energy prices from the Iran conflict mean fellow FOMC members are likely to be skeptical.

"It's not a meeting where rates policy is on the front burner, but the FOMC assessment of the economy may improve," Steve Englander, global head of G10 FX research at Standard Chartered in New York, said. "The inflation picture is improving very slowly at best and could be an emerging issue for Warsh to deal with" when he takes office.

The British pound fell 0.17% to $1.351. The Canadian dollar weakened 0.37% to C$1.368 per dollar, ahead of the Bank of Canada's rate decision later this week. Central banks in the euro zone and UK are also set to deliver decisions this week.

Bitcoin fell 1.34% to $75,940.25, while ether declined 0.89% to $2,271.93. (Reporting by Chibuike Oguh in New York and Sophie Kiderlin in London; Editing by Hugh Lawson)