UPDATE 4-Oil drops towards $68 on dollar, position limits

                                
 * Dollar index recovers from year's low
                                
 * U.S. exchange CME says will enforce position limits
                                
 * Traders say CME decision heightens worries over fines
                                
 
                                
(Updates throughout)
                                
 By Catherine Bosley
                                
 LONDON, Sept 14 (Reuters) - Oil eased towards $68 a barrel
on Monday, after a decision by a major U.S. commodities exchange
to enforce limits on large positions increased uncertainty and
the dollar strengthened slightly.
                                
 U.S. crude for October delivery <CLc1> fell 58 cents to
$68.72 a barrel by 1140 GMT, off a session low of $68.02. London
Brent crude <LCOc1> fell 25 cents to $67.44 a barrel.
                                
 The Chicago Mercantile Exchange on Friday pledged to enforce
existing position limits on NYMEX, CME, and other exchanges as
of Sept. 14. [ID:nN11461892]
                                
 Traders who are over the position limits would face fines or
could be found guilty of price manipulation unless they get a
hedge exemption, according to an advisory notice by the CME.
                                
 "There's a little bit of concerns or question marks about
the CME notice on position limits... with effective date of
today," said Olivier Jakob of Petromatrix in Switzerland.
                                
 "That might have made the market a little bit nervous and I
would expect that the market is going to remain a little bit
cautious until we can see through this notice."
                                
 Some oil traders told Reuters they interpreted the advisory
as a CME warning it could soon toughen up its enforcement of
position limits on commodities exchanges and potentially offer
fewer exemptions for exceeding those limits in the future.
                                
 
                                
 DOLLAR, OPEC
                                
 Oil fell more than 3.5 percent on Friday, unravelling gains
of over 5 percent in the first four sessions of last week when
it climbed above $70 a barrel, close to this year's high of $75,
hit in August.
                                
 Eugen Weinberg, an analyst with Commerzbank, said the dollar
and weaker equity markets were adding to pressure on crude
prices.
                                
 "Crude contracts are also following weaker equity markets
and a somewhat stronger dollar," Weinberg said.
                                
 For much of this year, oil prices have moved in tandem with
rising equity markets, which have factored in economy recovery,
with implications for fuel demand. They have also drawn strength
from a falling dollar.
                                
 A weak dollar makes dollar-denominated commodities cheaper
for holders of other currencies.
                                
 The dollar index <.DXY> edged higher on Monday, recovering
from a year-low of 76.457 points against a basket of six other
major currencies, [FRX/] while European equities <.FTEU3> were
down more than 1 percent. [.E]
                                
 For graph on the link between oil and equities, please click
on http://graphics.thomsonreuters.com/099/CMD_BRNT20909.gif
                                
 Although the dollar recovered slightly on Monday, many
analysts still predict it will stay weak.
                                
 After the Organization of the Petroleum Exporting Countries
last week agreed to keep existing output targets in place, the
group's secretary-general said a weak dollar was a concern and
the group needed higher average oil prices to step up
investment. [ID:nLA728188]
                                
(Additional reporting by Osamu Tsukimori in Tokyo; Editing by
Barbara Lewis)