Updates prices, adds analyst comment

By Amanda Cooper and Chibuike Oguh

NEW YORK/LONDON, May 27 (Reuters) - The yen fell to its weakest level in nearly four weeks on Wednesday, edging closer to levels that prompted Japanese authorities to intervene last month, as investors assessed renewed tensions in the Iran war.

The yen dropped 0.14% to 159.51 per dollar JPY=, its weakest since April 30, when authorities stepped in to support it. Traders widely see the 160 mark as a key trigger for intervention after the yen crossed that level last month.

"They've intervened formally, and the market is fully calling their bluff," said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey.

"This is not the first time this has happened. In the past this exact playbook plays out: they intervene and the market says, 'We don't believe you,' and they intervene again and the market says, 'We believe you this time.' I would argue that the market will most likely test the Bank of Japan again," Epstein said.

Markets are pricing a roughly 70% chance of a quarter-point interest rate hike at the BOJ's June 15–16 policy meeting, LSEG data showed.

DOLLAR STEADIES

President Donald Trump said the U.S. and Iran still have issues to resolve in peace talks, after Washington dismissed an Iranian state television report of a framework deal to restore shipping through the Strait of Hormuz within a month and to lift a U.S. naval blockade on Iranian ships.

The safe-haven dollar steadied, extending gains from the prior session, as hopes of a swift end to the war have waned in the wake of fresh hostilities.

The euro EUR= was a shade lower at $1.163125, while the pound GBP= was down 0.11% at $1.34320.

The dollar was up 0.13% to 0.7866 against the Swiss franc CHF=.

The dollar index =USD, which tracks the U.S. currency against the yen and five other peers, was little changed at 99.2 and on track for a second straight day of gains.

KIWI SHINES

The New Zealand dollar outperformed, rising after the central bank came unexpectedly close to raising interest rates and signaled that further tightening may be needed sooner and more aggressively than previously expected.

The Reserve Bank of New Zealand left its overnight cash rate unchanged in a split decision, with three members voting for a quarter-point hike and three opting to hold.

The kiwi NZD= rallied 1.11% to $0.59, rebounding from a loss in the earlier session.

The Australian dollar AUD= slipped 0.35% to $0.71415, reversing earlier gains after data showed annual inflation cooled to 4.2% in April.

The Australian dollar dropped sharply against the Kiwi AUDNZD, falling 1.39% to $1.202, making it the biggest daily decline in nearly a decade.