(Recasts after start of European trade, changes dateline from previous TOKYO/SYDNEY)

* Dollar on defensive as yen, franc surge

* Euro back above $ 1.10, dollar index at 3-week low

* Talk of safe haven flows on Saudi-Iran worries

By Patrick Graham

LONDON, March 26 (Reuters) – The dollar sank to a five-week low against the yen on Thursday, hit by the combination of another round of poor U.S. data and a bid for traditional safe havens by investors worried about stock markets and oil supplies out of the Middle East.

News that Saudi Arabia and its Gulf Arab allies had launched air strikes against Iran-allied forces in Yemen quelled risk sentiment and led to a surge in oil prices. This offered some support to the forex world’s traditional safe bets – the yen and the Swiss franc.

But the dollar was also more than half a percent lower against the euro, extending a poor run that has seen it drop around 5 cents in two volatile weeks. It traded at $ 1.1042 per dollar in Europe, just above a three-week low.

That slide has raised the first doubts among major banks over the dollar’s long march higher since the middle of last year. But even the analysts who have been most vocal in suggesting the rally may be slowing are not ready to say it is over.

“We have been talking about it being the beginning of the end and that’s still the way I would characterise it,” said Daragh Maher, currency strategist with HSBC in London.

“It would be a brave man who said we’d seen the bottom for the euro. What this squeeze will have done, however, is raised some doubts in people’s minds that the bull run is not without end.”

Against the yen, the dollar sank as low as 118.33 yen, down almost 1 percent on the day. It hit a one-month low against the franc of 0.9530 francs.

Data showed spending on U.S. durable goods fell for a sixth straight month in February, fresh evidence that economic growth slowed sharply early in the year, in part due to bad weather.

That comes on the heels of last week’s dovish steer from the Federal Reserve, which is now seen as likely to hike interest rates later rather than sooner, and by 0848 GMT the dollar index was down 0.8 percent on the day at 96.26, a three-week low.

Thursday’s surge in oil prices, if sustained, might have a negative effect on global growth, but it would have an upside in helping to alleviate some of the downward pressure on prices. The recent oil price collapse has kept central banks, including the Fed and the Bank of Japan, from making much progress in achieving their inflation targets.

“Energy prices are up significantly, and that could be good news for the Fed. We need to see how far they can recover, and if the rises can be sustained. So the main focus is on what oil prices do from now,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo.

(Additional reporting by Lisa Twaronite and Ian Chua; Editing by Toby Chopra)