FOREX-Dollar rises after hot inflation data, Iran ceasefire eyed

* Trump casts doubt on ceasefire after rejecting Tehran proposal

* Eyes on Trump-Xi meeting later in the week

* US inflation rises more than expected, CPI up 3.8% year-on-year

* Markets price out Fed rate cuts, odds of December hike increase (Updates to afternoon New York trading)

By Chuck Mikolajczak

New York, May 12 (Reuters) - The U.S. dollar climbed for a second straight session on Tuesday, after U.S. economic data showed inflation continued to increase, while uncertainty over the stability of a ceasefire in the Iran war also supported the safe-haven greenback. The Labor Department said the Consumer Price Index (CPI) increased 0.6% last month, matching the estimate of economists polled by Reuters, after surging 0.9% in March.

In the 12 months through April, the CPI advanced 3.8%, marking the biggest year-on-year increase since May 2023 and a touch above the 3.7% forecast, after a 3.3% rise in March.

"This is the first inflation report where we're seeing consumer prices directly being impacted... how long will oil prices stay high? Is it going to be sticky? Until we see oil prices come down, inflation is here to stay," said Adam Sarhan, chief executive at 50 Park Investments in New York.

"That is a concern for the market and, more importantly, for the Fed."

The dollar index, which measures the greenback against a basket of currencies, rose 0.4% to 98.36, on track for its biggest daily percentage gain since April 2, with the euro down 0.42% at $1.1732. Markets have largely priced out any chance of a rate cut from the Federal Reserve this year, while expectations for a hike of at least 25 basis points at the central bank's December meeting rose to 36% from 23.6% in the prior session, according to CME's FedWatch Tool. Kevin Warsh, U.S. President Donald Trump's pick to be the next Fed chair, was confirmed by the U.S. Senate to a 14-year term as Federal Reserve governor, which also approved the start of a 30-hour countdown that allows a vote to approve Warsh for a concurrent four-year term as chair as soon as Wednesday.

TRUMP SAYS IRAN DEAL 'ON LIFE SUPPORT'

After a sharp rise in March as the war between the U.S. and Iran began, the dollar had retreated in April on optimism a deal to end the war could be reached. Hopes for a peace deal on Iran faded on Tuesday, however, after Donald Trump said a ceasefire with Iran was "on life support" as Tehran rejected a U.S. proposal to end the conflict and stuck to a list of demands the U.S. president described as "garbage." U.S. crude rose 4.17% to $102.08 a barrel and Brent rose to $107.84 per barrel, up 3.48% as the latest stalemate stoked supply concerns.

JAPAN MOVES TO SUPPORT YEN Against the yen, the dollar strengthened 0.33% to 157.66. The Japanese currency had jumped suddenly earlier on Tuesday, stoking speculation of a "rate check," which is often a precursor to currency intervention. U.S. Treasury Secretary Scott Bessent said the U.S. and Japan believe that excess volatility in the currency market is undesirable, comments seen as offering some support to Tokyo's recent round of intervention to prop up the yen.

Japan intervened to prop up the currency two weeks ago, two sources familiar with the matter told Reuters. Sterling weakened 0.62% to $1.3523 after hitting 1.3498, its lowest since April 30, as British Prime Minister Keir Starmer defied calls to resign, telling ministers he would get on with governing despite a "destabilizing" 48 hours of growing calls to set out a timetable for his departure after a drubbing in local elections.

Kit Juckes, macro strategist at Societe Generale, said in a note he believes a lot of the negative news is already in the price "and sterling could eventually provide a buying opportunity," but "the UK's combination of sticky inflation and weak growth, is however, a recipe for the pound's long-term decline to continue."

The dollar edged up 0.03% to 6.793 versus the offshore Chinese yuan ahead of talks between Trump and Chinese President Xi Jinping in Beijing this week after reaching 6.7885, its strongest level since February 2023.

Barclays head of Asia FX and rates strategy Mitul Kotecha said in a note that the firm expects the yuan "to continue to pivot around 6.80 in the near term, with risks of strengthening" versus the greenback, while a stable to slightly firmer yuan "would be helpful in smoothing the path towards the discussions between both countries." Trump said on Monday he would discuss the topic of arms sales to Taiwan and the case of jailed media tycoon Jimmy Lai and would also have a discussion about Washington's support for Taiwan's defense.

(Reporting by Chuck Mikolajczak; Additional reporting by Stephen Culp in New York, Stefano Rebaudo in London and Ankur Banerjee in Singapore; Editing by Andrea Ricci and Nick Zieminski)