* U.S. dollar off six-month highs versus euro
* Rally in commodities weighs on dollar
* Yield outlook still favours further dollar recovery
(Changes byline, dateline; previous LONDON, adds quotes,
updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Aug 18 (Reuters) - The U.S. dollar slipped
against the yen and a basket of currencies on Monday, weighed
down by a recovery in oil prices which gave investors the
opportunity to take profits on the greenback's recent sharp
rally.
But the dollar's losses were limited by the rise in U.S.
stock futures as oil prices slipped and geopolitical tensions
eased after Pakistan's beleaguered President Pervez Musharraf
announced his resignation on Monday.
The uncertainty over Musharraf had earlier raised concern
in the United States and among its other allies that the issue
was distracting from efforts to control violent militants in
the nuclear-armed nation.
"The dollar has come off because investors have realized
that it has moved too far, too fast. At some point you would
expect a pause," said David Watt, senior currency strategist,
at RBC Capital Markets in Toronto.
But he added that markets remained optimistic on the
dollar, which hit a six-month high of $1.4645 <EUR=>, according
to electronic trading platform EBS, up nearly 9 percent from a
record low hit last month.
"It would take a significant souring of the U.S. economic
outlook to take the dollar down. The perception on the dollar
has changed and what you're seeing is a pullback in what is
essentially a bull market," Watt said.
The euro fell to a six-month low of $1.4645 in early Asian
trade before recovering to $1.4690 <EUR=>, little changed on
the day.
The dollar also retreated 0.1 percent to 110.33 yen <JPY=>
while the euro was down at 162.07 <EURJPY=>.
The dollar index, which measures the dollar's value
against a basket of six currencies, slipped 0.1 percent to
77.056 <.DXY>, down from a seven-month high of 77.268 struck on
Friday.
The gain in commodities slightly weighed on the dollar,
with the Reuter-Jefferies CRB Index, up 0.2 pct at
382.98<.CRB>. The index had lost around 18 percent from its
July peaks.
Oil at one stage rose more than $1 to above $115 a barrel
<CLc1> on supply concerns. It last traded up almost 0.4 percent
at 114.18.
Spot gold, meanwhile, bounced off a nine-month low, gaining
0.8 percent to $791.70 per ounce <XAU=>.
Higher oil and commodity prices tend to be negative for the
U.S. dollar as the bull-run in raw materials has added to
upward inflation pressure amid a sharp economic slowdown in the
wake of a year-old global credit market crisis.
"The dollar seemed to overshoot the macro adjustments last
week... with the massive liquidation in the commodity markets,"
ING head of FX research Chris Turner said. "But we're seeing
some signs of stability there and second thoughts about how far
oil will fall is allowing the dollar to take a breather,"
The euro tumbled nearly 6 percent against the dollar in
just two weeks due to increasing investor concern that the
slowdown in the U.S. economy will be replicated in Europe and
globally.
Data last week showed euro zone growth contracted in the
second quarter for the first time ever, helping scotch any
expectations of euro zone rate increases.
The dollar, meanwhile, has garnered broad support from the
view that the Federal Reserve, having cut rates by over 300
basis points over the last year, has probably ended its easing
cycle.
The massive repositioning of the market, reflected in IMM
data, has lent considerable momentum to the dollar," said
Calyon in a note to clients, saying forecasting a floor level
for the euro "is now akin to catching the falling knife."
Monday is very quiet for data but investors will look to
Germany's ZEW gauge of economic sentiment and euro zone service
sector activity later in the week for more clues on the extent
of headwinds affecting the euro zone economy.
(Additional reporting by Veronica Brown; Editing by Chizu
Nomiyama)
