Oil slides below $110 as dollar gains on G7 talk

SINGAPORE (Reuters) - Oil prices fell below $110 a barrel on Monday, backing further down from last week's record high as the dollar gained following an unexpected warning from the Group of Seven against excessive currency fluctuations.

U.S. light, sweet crude oil futures for May delivery fell 39 cents a barrel to $109.75 by 2307 GMT after having gained 3 cents on Friday. Prices hit a record high $112.21 a barrel on Wednesday after a big fall in U.S. crude and fuel stocks.

After meeting on Friday, G7 finance ministers and central bankers issued a statement saying they were concerned by the sharp moves in foreign exchange markets in recent weeks. That was a marked change in their tone and was taken as a warning that the dollar was falling too fast.

The euro was trading at $1.5722, having slid from $1.5835 late in New York on Friday.

Gains in oil and commodity markets have been fuelled in part by investors and speculators seeking a hedge against inflation and the falling dollar, but some analysts said this relationship may have gone as far as it can go.

"Non-fundamental factors, such as the exchange value of the U.S. dollar, continue to play a role in setting the tone for price direction, but may have potentially peaked in terms of maximum bullish impact on crude oil prices," Martin King, analyst with First Energy Capital, said in a report.

"With the headwinds in the global crude oil market starting to blow harder, the smooth sailing days for crude oil prices may be coming to an end."

On Friday the dollar had fallen following data showing U.S. consumer confidence fell to its lowest in more than a quarter century in early April, offsetting the bearish impact of the sharpest one-off cut in the International Energy Agency's global oil demand growth forecast since 2001.

The energy watchdog slashed its 2008 global oil consumption forecast by 460,000 barrels per day (bpd) to 1.27 million bpd due to high prices and the faltering U.S. economy, but said demand from China and the Middle East remained largely intact.