FOREX-Dollar eases towards 1-mth lows in thin trade

By Rika Otsuka

TOKYO, May 26 (Reuters) - The dollar eased towards one-month lows against a basket of major currencies on Monday after falling late last week on concerns that surging oil prices could further slow the U.S. economy and add to inflation pressures.

Trading in Asia was subdued, with many investors retreating to the sidelines as U.S. and U.K. financial markets are closed for national holidays on Monday.

"The dollar continues to stay on a downward trend with many players just looking for a chance to sell it," said Tsutomu Soma, senior manager of foreign assets at Okasan Securities.

"Investors are very nervous, wondering how the Federal Reserve will manoeuvre monetary policy amid an economic downturn and worsening inflation worries," Soma said.

With crude oil climbing above $135 a barrel last week, markets have priced out the chances of another Fed rate cut this year, through a rate increase may be difficult at a time when the world's biggest economy is facing slower growth.

The Fed is expected to halt its run of interest rate cuts to bolster the country's growth after slashing rates by 3.25 percentage points since last September to the current 2 percent.

The dollar index edged down 0.1 percent on the day at 71.888 .DXY, hovering near one-month lows of 71.823 struck last week.

The euro rose to $1.5790 EUR=, up 0.2 percent from late U.S. trading on Friday. It hit all-time highs above $1.60 last month.

The dollar slid 0.2 percent against the Japanese currency to 103.15 yen JPY= as a fall in Tokyo stocks prompted investors to unwind risky carry trades. In carry trades, low-yielding currencies such as the yen are used to finance purchases of assets offering higher returns elsewhere.

The Nikkei stock average .N225 fell 1.6 percent in early Asian trade.

The European single currency dipped 0.1 percent to 162.85 yen EURJPY=.

U.S. crude CLc1 rose $0.38 to $132.57 on Monday after soaring to a record high of $135.09 last week. (Editing by Chris Gallagher)