FOREX-Dlr on back foot near lows, financials in focus

* Euro up 0.2 percent at $1.5880 EUR=

* Investors watching U.S. earnings, oil prices

* Sentiment on U.S. financials remains cautious

(Changes dateline, updates prices, adds quotes)

By Naomi Tajitsu

LONDON, July 21 (Reuters) - The dollar slipped on Monday, staying near a record low against the euro on concerns about the health of the U.S. financial sector, while investors focussed on a proposed rescue plan for Fannie Mae and Freddie Mac.

Losses were limited as confidence in the U.S. financial sector, hard-hit by the nearly one-year old credit crunch, was boosted somewhat late last week after results from Citi (C.N), JPMorgan Chase (JPM.N) and Wells Fargo (WFC.N) beat low expectations.

But a flurry of earnings due this week -- including Bank of America later in the day and Wachovia WB.N on Tuesday -- kept investors on edge.

"We're waiting to see the degree to which markets, particularly equities, are starting to stabilise after the recent mayhem," said Stephen Koukoulas, global strategist at TD Securities.

Treasury Secretary Henry Paulson said on Sunday he was optimistic Congress would approve the government's request for authority to shore up the two troubled mortgage giants, Freddie Mac and Fannie Mae.

"The question is will there be some disappointment in respect to the rescue package or not. If not, that should be dollar supportive," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.

The euro edged up 0.2 percent to $1.5880 EUR= by 1006 GMT, hovering in range of a record high of $1.6038 last week.

Klawitter at Dresdner said the $1.60 level was likely to serve as a ceiling for the pair, and that a break above that level would require a clear loss of confidence in the overall U.S. financial system.

But financial markets were calm on Monday, with European stocks .FTEU3 recovering from an early slide,.

The dollar fell 0.3 percent to 106.64 yen JPY=, while the euro was little changed at 169.35 yen EURJPY=.

OILY PATH

The dollar had also been supported last week by a sharp pullback in oil, which posted its biggest one-week slide on record last week, bouncing off a record high $147.27 hit earlier in the month.

U.S. crude oil CLc1 reversed some of those losses on Monday, gaining $2.00 per barrel at one point to $131.02 after talks over Iran's nuclear ambitions failed to reach a conclusion [O/R].

But given the slide in oil prices from the record peak, Koukoulas at TD Securities said a fall to around $125 in the very near term may prompt a shift in the view that inflation pressures will continue to snowball.

An easing of inflation risks would take some pressure off central banks like the European Central Bank to raise rates, while also making it easier for the Bank of England to administer a much-needed rate cut to kick start the UK economy.

The Federal Reserve is expected to hold rates through end-2008 after ending a cycle of monetary easing last month.

Looking ahead, traders were awaiting a speech from Philadelphia Fed Chief Charles Plosser on Tuesday, while New York Fed President Timothy Geithner and SEC Chairman Christopher Cox are set to testify before a House Financial Services Committee hearing on regulation on Thursday.

The Fed releases its Beige Book summary of the economy on Wednesday where it will have to balance weakness in the housing market and the squeeze in credit markets against rising inflation. Data on U.S. home sales are also due this week.

(Additional reporting by Toni Vorobyova)