SHANGHAI, May 20 (Reuters) - China's yuan held steady against the U.S. dollar, which hovered near a six-week high on Wednesday, though investors remained bullish on the Chinese currency.

Stalled U.S.-Iran talks are keeping oil prices elevated, while heightened inflation expectations and safe-haven demand are underpinning the dollar.

The spot yuan CNY=CFXS opened at 6.8140 per dollar and was trading at 6.8123 as of 0301 GMT, 1 pip lower than the previous late session close.

President Donald Trump said on Tuesday the United States may need to strike Iran again, adding he had come within an hour of authorising an attack before pulling back.

The yuan is up 2.7% this year and some investment banks have revised up their forecasts.

The yuan's rise against the dollar can be attributed to exporters converting their dollar holdings more quickly, but the PBOC is unlikely to allow a rapid breach of the 6.8 level at this point, said Alex Loo, senior macro strategist at TD Securities, picking the yuan to strengthen to 6.7 per dollar by year end.

Prior to the market opening, the People's Bank of China set the midpoint rate CNY=PBOC at 6.8397 per dollar, 325 pips weaker than a Reuters' estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The fix tends to narrow the gap with market estimates when the dollar is rising rather than falling, another sign the PBOC wants to slow the yuan's advance, Maybank analysts said in a note.

On the policy front, China left benchmark lending rates unchanged for the 12th consecutive month in May on Wednesday, in line with market expectations.

The offshore yuan traded at 6.8155 yuan per dollar CNH=, up about 0.03% in Asian trade.

The dollar index =USD, which measures the greenback against a basket of six currencies, was 0.065% higher at 99.37.

LEVELS AT 0301 GMT

INSTRUMENT	CURRENT vs USD	UP/DOWN(-) VS. PREVIOUS CLOSE %	% CHANGE YR-TO-DATE	DAY'S HIGH	DAY'S LOW
Spot yuan CNY=CFXS	6.8123	0.04	2.67	6.8072	6.8175
Offshore yuan spot CNH=D3	6.8154	0.03	2.37	6.8096	6.8193