The dollar edged higher against major currencies on Monday, helped by a slide in oil prices after Group of Seven finance ministers called for an increase in oil production and, separately, Saudi Arabia said it would boost output.
The decline in oil prices, which hit 21-year highs last week, eased worries that high energy costs would soon weigh on the US economy and Wall Street stock prices, traders said.
"Key investor interest is on oil markets now, and if oil prices stabilise this will lead to dollar-buying," said Kenji Kobayashi, senior manager of the forex and treasury division at Bank of Tokyo-Mitsubishi.
US light crude sank as low of $39.47 a barrel, extending Friday's fall to below the $40 threshold.
The dollar was at $1.1965 per euro up about 0.2 percent from the late New York level on Friday.
The currency stood at $1.7860 per British pound, up 0.16 percent, and fetched 1.2840 Swiss francs, up from 1.2810.
Unlike other recent G7 meetings, at which flexibility or volatility in the currency market was discussed, G7 ministers said that currency and interest rate issues took a back seat at the latest meeting on the weekend because central bank chiefs were not present.
Instead, they focused on trying to persuade oil producers to contain perky oil prices.
Saudi Arabia's decision to raise output - not related to the G7 request - came despite opposition from some of its Opec partners.
"The dollar/yen rate had been fairly highly correlated to share prices in the United States and Japan, and oil prices have been a major factor behind the stock market gyrations," said Hiroyuki Watanabe, foreign exchange manager at Shinsei Bank.
"In that sense, the news over the weekend could put a brake on the dollar-bearish attitude we saw last week. But that doesn't mean the risk is gone."
Some analysts said that the impact of high energy prices on the dollar had been exaggerated.
"As global deflationary pressure is fading, excessive liquidity in stock markets, commodities and higher-yielding currencies is also easing," said Taisuke Tanaka, chief macro strategist at Credit Suisse First Boston in Tokyo.
"Only oil has not yet seen a major price adjustment. People tend to over-focus on this and say it's a worrying factor for unstable stock prices," he said.
Tanaka said that Europe and Japan are usually thought to be more vulnerable to higher oil prices, but escalating tensions in Iraq is complicating the potential impact on the United States.
The dollar climbed to a high of 112.95 yen after easing to 112.10 yen on a rise in Japanese stock prices.
The dollar's rise against the yen was modest compared with its rise against European currencies as a fall in oil prices is also a positive factor for the yen, analysts said.
Morgan Stanley in Tokyo estimated that yen-denominated landed oil prices would rise by upwards of 40 percent year-on-year over the next few months, and that the Japanese corporate sector would bear the brunt given a recent spike in crude oil prices and a weaker yen.
The Nikkei stock average ended trade up just 0.28 percent. But dealers said that foreign investors, who had been holding off investing in Japanese equities for the past several weeks, could return to the Tokyo market if bank earnings arrive without any major negative surprises.
Dealers showed muted reaction to Japanese Prime Minister Junichiro Koizumi's visit to North Korea over the weekend, while some waited to see how the visit would affect the public's approval of his administration.
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