* End-month demand, Japan mutual funds support dollar
* Dollar outlook remains gloomy on poor economy, stock falls
* BOJ tankan, ECB, U.S. jobs eyed for next direction
By Chikako Mogi
TOKYO, June 30 (Reuters) - The dollar fell to three-week lows
against the euro on Monday, dented after oil prices surged late
last week to a record high, data showed U.S. consumer sentiment
hit a 28-year low and Wall Street stocks extended their slide.
The battered stock market and worries over the credit market
scaled back expectations for how soon the Federal Reserve could
boost interest rates, even after the central bank said inflation
risks have risen and kept interest rates on hold last week.
The dollar found some brief support on month-end buying from
Japanese importers and demand tied to Japanese investment trusts,
traders said.
"The surge in oil prices and the slide in U.S. stocks keep
the dollar's outlook gloomy and make it difficult for the
currency to recover strongly," said a senior dealer at a European
bank.
"Players are waiting to see whether this week's key events
provide clues about the dollar's direction," the dealer said.
The Bank of Japan releases on Tuesday its quarterly tankan
survey of corporate sentiment, while the European Central Bank
holds a policy meeting on Thursday and is widely expected to
raise rates to 4.25 percent to rein in rising prices.
The key U.S. jobs data is also due on Thursday.
The dollar came under additional pressure after U.S.
financial shares fell on Friday on worries about more credit
losses. Lehman Brothers forecast Merrill Lynch <MER.N> would
write down another $5.4 billion in the second quarter, while
Moody's said it may cut Morgan Stanley's <MS.N> credit rating.
With Friday's fall, the Dow Jones industrial average <>
was down 14.5 percent for the year, and was more than 20 percent
below its October 2007 peak at one point, meeting a traditional
definition of a bear market.
"After this week's events, stock markets will likely take the
lead and determine the dollar's fate," said a senior trader at a
Japanese trust bank. "If trend-following funds kick off July with
stock selling positions, it will weigh on the dollar," he said.
DOLLAR RESILIENCE
For the second quarter, however, the dollar was showing some
resilience against major currencies. The dollar index <.DXY>,
which tracks the U.S. currency's performance against a basket of
six currencies, is on track for its first quarterly rise in
nearly two years.
The dollar was steady at 106.12 yen <JPY=>, off three-week
lows of 105.85 yen hit on Friday. Earlier, it rose to an intraday
high around 106.50 yen.
After falling to a 12-year low against the yen in March, the
dollar was up 6.5 percent in the second quarter and set for
its best quarter against the yen in almost seven years.
The euro was little changed at $1.5786 <EUR=>, after it rose
to a three-week high of $1.5798 in early trading.
The euro rose to a record $1.6020 in late April, but the
single currency was likely to end the quarter flat against the
dollar.
Low-yielding currencies such as the yen climbed on Friday as
risk appetite waned on losses in global equity markets.
While the yen may be benefiting from bouts of risk aversion
that prompt an unwinding of carry trades, expectations for rising
overseas interest rates to combat inflation pressures will likely
keep the yen weak against higher-yielding currencies, traders
said.
The euro was little changed at 167.51 yen <EURJPY=>, slipping
from the day's high of 168.13 yen but off Friday's low of just
above 167.00 yen.
Against the yen, the euro was set to post its biggest
quarterly rise in five years. It hit a record high of 169.47 yen
last week.
(Additional reporting by Masayuki Kitano; Editing by Brent
Kininmont)
