Sterling holds steady as traders watch Iran talks and Japanese yen

LONDON, Aug 4 (Reuters) - The pound was little changed on Tuesday as markets waited for further details on possible U.S.-Iran peace talks and traders were on alert for further intervention in the Japanese yen that has the potential to spill over into other markets.

Sterling was last up less than 0.1% at $1.344, after rising sharply at the end of last week as the dollar slid in the wake of official intervention to prop up the yen and as the U.S. Federal Reserve held interest rates.

The pound was also little changed against the euro, with the euro zone's currency down less than 0.1% at 85.62 pence.

Oil prices have fallen this week after U.S. President Donald Trump said on Monday that talks with Iran were under way, reducing potential inflationary pressures for energy-importing countries, such as Britain.

Yet Iran denied that any negotiations were being held or planned, pushing oil prices back up slightly on Tuesday, with Brent crude up 3% to $86.10 a barrel.

Currency traders were also bracing for potential further intervention in the yen after Japan and the U.S. bought the currency in a rare move at the end of last week.

Two market sources told Reuters the U.S. Treasury bought yen with euros instead of dollars, a highly unusual move likely aimed at helping Japan without encouraging a view that Washington wants a softer dollar.

The swings in currency markets, as well as the Fed decision, helped drive sterling up 1.4% over three days at the end of last week.

This week, investors are also waiting for Friday's monthly U.S. jobs report for July, which could jolt markets should it cause traders to shift their bets on Fed rate hikes.

"We think further U.S. dollar losses from here require a more compelling macro argument," said Francesco Pesole, currency strategist at ING. "That is, soft data justifying a new round of dovish repricing."

(Reporting by Harry RobertsonEditing by Tomasz Janowski)