GLOBAL MARKETS-Dollar slips as oil firms on storm threat

By Jeremy Gaunt, European Investment Correspondent

LONDON, Aug 18 (Reuters) - Oil prices rose on Monday as a storm threatened production and supply in the Gulf of Mexico, helping take the dollar down from seven-month highs against major currencies and weakening European stocks.

U.S. crude CLc1 was up about 75 cents at $114.52 a barrel as some computer projections showed Tropical Storm Fay risked coming close to major production areas.

Oil's fall to a more than 3-month low of $111.34 on Friday has helped ease market concerns about inflation.

Monday's rise fed into a general bout of dollar weakness, much of it following on from recent rises.

"There's been a retracement in the dollar, partly on profit taking but mainly because commodities have moved back higher, and commodities seem to be wagging the FX market dog," said Jeremy Stretch, a strategist at Rabobank.

The dollar index .DXY, which tracks the U.S. currency against a basket of major counterparts, was down after hitting a 7-month high on Friday.

The greenback also retreated from a six-month high against the euro and was trading around $1.475. It was also down against the Japanese yen at 110.22 yen.

European shares got off to a weak start as the dollar slipped.

The FTSEurofirst 300 index of top European shares was down 0.7 percent. The index has eked out a 0.3 percent gain this month and is on course for only the second month of gains so far this year.

Banks were broadly lower and drugmakers also weakened.

Analysts said, however, they expected the dollar's fall to be a short-term development.

"I suspect continued weakness in the euro as the figures coming out of Europe are going to be poor," said Justin Urquhart Stewart, investment director at Seven Investment Management.

Earlier, Japan's Nikkei average .N225 rose 1.1 percent as exporters gained on recent yen softness.

"There has been a tug of war between negative fundamentals such as the economic slowdown and positive factors for corporate earnings such as a softer yen and fall in oil prices," said Yukio Takahashi, market analyst at Shinko Securities.

The benchmark ended up 146.04 points at 13,165.45. The broader Topix climbed 1.3 percent to 1,263.75.

Two-year euro zone government bonds yielded a slightly lower 3.985 percent while 10-year yields were flat near three-month lows at 4.145 percent .