Crude recoils after fresh peak of $111

By Ikuko Kao

LONDON (Reuters) - Oil fell in volatile trade on Thursday as dealers took profits from a record rally that added nearly 30 percent to prices in just over a month.

U.S. crude for April delivery dipped 90 cents to $109.02 a barrel by 1745 GMT after striking a new high of $111.00 a barrel earlier in the day. London Brent crude for April, which expires Friday, was up 10 cents at $106.37.

Oil's surge in recent weeks has been tied to all-time weakness in the U.S. dollar in the midst of an economic slowdown -- a factor that has propelled the nominal prices of virtually all commodities traded in the currency despite the risk of an underlying slowdown in demand.

"As we've seen before, following a run-up to record highs, prices back down on some profit-taking as the market consolidates, but after a while the market goes back to its bullish trend," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

"The relation between the weak dollar and strong crude continues to dictate price direction at the moment and people are not trading on economic fears," he said.

The dollar dropped to a 12-year low against the yen and a record low versus the euro Thursday on uncertainty about the long-term impact of the Federal Reserve's efforts to ease strained credit and money markets.

"Commodities are likely to have been the key beneficiary of the aggressive Fed rate-cutting cycle," Citigoup said in its research note.

Encouraging Thursday's losses in oil prices, a U.S. government report Wednesday showed crude stocks rose more than expected last week and gasoline stocks were at a 15-year high.

(Additional reporting by Richard Valdmanis in New York)