Oil falls $4 from record highs as dollar firms

By Matthew Robinson

NEW YORK (Reuters) - Oil fell $4 from record highs on Monday on the stronger dollar and profit-taking after surging an unprecedented $16 in the previous two sessions.

The slide came after oil jumped nearly $11 on Friday alone as the dollar weakened and on forecasts of falling inventories in the United States and weak supply.

U.S. crude settled down $4.19 at $134.35, off the record high $139.12 hit on Friday. London Brent crude dropped $3.78 to settle at $133.91 a barrel.

Oil has surged more than 40 percent this year as investors pour into commodities as a hedge against the weak dollar and inflation.

The dollar firmed on Monday after U.S. Treasury Secretary Henry Paulson did not rule out intervening in currency markets to stabilize the greenback, adding the Bush administration was "focused" on both the dollar and oil prices.

Dallas Federal Reserve Bank President Richard Fisher warned a weak dollar can create a "negative feedback loop" spurring inflation and sapping growth, as he left the threat of currency intervention hanging.

"After the exaggerated move up last week, most expected the market would come off some. Any chatter supportive to the dollar is going to be bearish for commodities in general and crude oil in particular," said Eric Wittenauer, analyst at Wachovia Securities in St. Louis.

The rise of investor flows has added to a six-year rally sparked by concerns demand from emerging economies such as China would outpace supply growth, sending oil prices up seven-fold since 2002.