Dollar Falls as U.S. Stocks Extend Declines

The dollar fell against the euro and erased gains versus the yen Monday as U.S. stocks deepened losses on worries about the credit crisis and the health of the financial sector.

The euro was last up 0.3 percent at $1.5748 after dipping to a session trough of $1.5611. The dollar was flat at 106.80 yen, down from a session high of 107.75 yen .

"There is nothing on the FX front, everyone is looking at equity markets," said Ron Simpson, director of foreign exchange at Action Economics in Tampa, Florida. "Commodity and energy stocks have all got smashed."

U.S. stocks extended losses as nagging credit worries hurt financial stocks and energy shares fell on a pullback in the price of oil.

Some Focus on G8

Traders are also focusing on the annual summit in Japan of the Group of Eight industrialized nations.

G8 leaders aim to present a united front against global inflation, driven by soaring oil and food prices, though analysts say solving the problem will require input from developing as well as developed countries.

Investors are also keen to see whether G8 leaders mention this year's weakness of the U.S. dollar, although many doubt that officials will call for concrete action.

The euro eased versus the dollar in early New York trading, nearly three cents below two-month highs seen on Thursday before the ECB decision.

After the widely-expected rate hike on Thursday, ECB President Jean-Claude Trichet said he had no bias on further policy moves, prompting markets to trim bets for more policy tightening.

"The pendulum of expectations is in the process of swinging further away from ECB rate hikes. Currently expectations for a series of ECB hikes have been scaled back since the ECB meeting," said Brown Brothers Harriman in New York.

Near-term, analysts said the euro could come under further pressure.

One of the major movers on the day was sterling , which fell after news that British industrial output fell more than expected in May, highlighting the twin threats of a sharply slowing economy and rising inflation.

No major U.S. data are due on Monday, but San Francisco Fed President Janet Yellen will speak later in the day.

Fed Chairman Ben Bernanke will speak at a Federal Deposit Insurance Corp forum on Tuesday, and give testimony before the House Financial Services committee on Thursday, although he is expected to confine his comments to financial market regulation.