OSAKA, Japan (Reuters) - The weak U.S. dollar and oil speculators took centre stage as Group of Eight finance ministers gathered in Japan on Friday to grapple with surging inflation and a slowing global economy.
As soaring energy costs stirred protests from Malaysia to Spain, the world's most powerful governments talked up a link between a dollar slide and a doubling of oil prices in 12 months.
Their communique at the end of their meeting on Saturday will describe commodity prices as a "serious challenge" to economic growth, a G8 source told Reuters.
The G8 countries, mostly importers of crude, wield little influence over oil markets that are driven by demand from India and China and concerns about supplies. But they can try to arrest a slide in the U.S. currency that has prompted investors to buy oil futures and other commodities to hedge dollar risks.
"On top of the (oil) barrel there is a magnum of speculative champagne," Italian Economy Minister Giulio Tremonti said, floating a plan to make speculation in oil futures more costly. "There are more contracts than barrels," he told reporters.
The G8 will ask the International Monetary Fund to study the rise in commodity prices, Tremonti said.
Other officials put the focus on currency markets.
A Japanese official called for a defence of the dollar to contain commodity prices. France welcomed the U.S. currency's rebound of the past week, after Washington signaled it was worried enough about the dollar's long decline to raise the prospect of intervening in markets.
Japanese Finance Minister Fukushiro Nukaga said he had discussed currencies with U.S. Treasury Secretary Henry Paulson, who refused last week to take intervention off the table. Nukaga declined to say if they had talked about the dollar.
"Markets will be sensitive to any sign that G8 officials are sanctioning intervention to strengthen the U.S. dollar," analysts at Calyon Capital Markets Research said in a note.
With central bankers absent, currencies had not been top of the agenda for the two-day meeting of G8 financial leaders in the Japanese city of Osaka. Officials had said the talks would focus on commodities and inflation.
"Elevated commodity prices, especially of oil and food, pose a serious challenge to stable growth worldwide...may increase global inflationary pressures," the G8 draft says, according to the source.
But French Economy Minister Christine Lagarde said commodity prices and inflation were inextricably tied to the dollar.
"The strengthening of the dollar I find satisfying," Lagarde said in Osaka, Dow Jones Newswires and other media reported.
The dollar edged higher after her comments, as it closed in on its biggest one week rally against the euro in three years.
Oil prices have rallied in tandem with a slide that has seen the dollar nearly halve in value against the euro in six years.
"Defence of the dollar has become an urgent issue," Kyodo news agency quoted Japan's Financial Services Minister Yoshimi Watanabe as saying on Friday.
The Dallas Federal Reserve said in a paper last month the U.S. currency's slide had contributed about one-third of a $60 increase in oil prices between 2003 and 2007.
Italy will propose increasing the size of the deposit required to trade oil futures to make speculation more difficult, Tremonti said, warning that failure to act would have political consequences.
"The impoverishment of the middle classes in Europe can have only one outcome: fascism," he said.
Anger over oil prices near a record $140 per barrel has spilled on to streets around the world. Trucker strikes turned violent in Spain, Malaysians marched against the government and authorities from Thailand to the Netherlands face protests over rising pump prices.
Those prices are also percolating through the global economy, crimping growth, stoking inflation and dampening consumption. Data released on Friday showed U.S. inflation and euro wage growth accelerating.
The Bank of France cut its second-quarter economic growth forecast by a third to 0.2 percent. The Bank of Japan downgraded its view on exports and corporate profits.
Markets have long interpreted U.S. dollar policy as one of "benign neglect" -- speaking of the virtues of a strong currency while profiting through export growth from its weakness.
Last week Federal Reserve Chairman Ben Bernanke flagged a change in Washington by linking the weaker dollar to inflation and saying that he was watching the currency closely with the Treasury. Paulson then refused to rule out intervention.
The last coordinated intervention among G8 states came in September 2000 when the Fed, European Central Bank and Bank of Japan acted to stem the euro's decline.
The G8 groups the United States, Japan, Britain, France, Italy, Germany, Canada and Russia.