UPDATE 1-Brent drops below $109 on Cyprus concerns

* Risk appetite wanes across the board, firm dollar weighs

* Investors eye Cyprus vote over deposit tax

(Adds details)

TOKYO, March 18 (Reuters) - Brent crude dropped more than $1 to below $109 a barrel early on Monday, as the dollar firmed after an unusual bailout proposal for Cyprus threatened to trigger fresh turmoil in the euro zone.

The appetite for riskier assets waned across the board, with Asian shares and commodities such as copper slipping, as news that Cyprus would have to tax depositors as part of a bailout plan sparked fears of a run on some banks in the region, driving down the euro.

Brent crude for May delivery was trading down $1.39 lower at $108.43 a barrel by 0203 GMT, after dropping to a low of $108.35 earlier in the session.

U.S. crude for April delivery, which expires on Wednesday, was down $1.23 at $92.22 a barrel.

"It's a Cyprus shock. The euro fell, and crude followed that lower," said Ken Hasegawa, a commodity sales manager at Newedge in Tokyo. "We don't know what's going to happen, and it's becoming a uncertain factor."

In a radical departure from previous aid packages, euro zone finance ministers want Cyprus savers to forfeit a portion of their deposits in return for a 10 billion euro ($13 billion) bailout for the island, which has been financially crippled by its exposure to neighbouring Greece.

On Monday, Cyprus's fractious 56-member parliament is scheduled to vote on whether depositors should forfeit part of their savings to fund a bailout, mainly needed to recapitalise banks.

The uncertainty surrounding the proposed bailout drove investors to the safety of gold, which rose above $1,600 an ounce for the first time in more than two weeks.

Oil prices should, however, find a floor given the continued standoff between the West and Iran over Tehran's disputed nuclear programme. The West believes Iran is developing weapons, a charge Tehran denies.

As part of its latest effort to choke off Tehran's funding of its nuclear program, the United States has imposed sanctions on Iranian companies it says provide insurance services to the country's main petroleum shipper.

Worries that the standoff will escalate and disrupt oil supplies have kept Brent above $100 a barrel through most of 2012 and this year.

(Reporting by Osamu Tsukimori; Editing by Himani Sarkar)