By Tetsushi Kajimoto

The dollar drew support when French Economy Minister Christine Lagarde welcomed a strengthening of the U.S. currency after a flurry of hawkish remarks from U.S. officials including Treasury Secretary Henry Paulson.

Japan's Finance Minister Fukushiro Nukaga said he may discuss currencies with Paulson, who signaled a shift in Washington's dollar policy last week by refusing to take intervention off the table.

Currencies had not been top of the agenda for the two-day meeting of G8 financial leaders in the Japanese city of Osaka. With central bankers absent, currencies will not be mentioned in the communique and officials have said the talks would focus on commodities and inflation.

But Lagarde said the currencies, inflation, commodity prices were inextricably linked.

"The strengthening of the dollar I find satisfying," Lagarde said in Osaka, Dow Jones Newswires and other media reported.

"However, there is a cause/effect link between the stability of financial markets, the euro-dollar exchange and increasing prices of oil products.

The euro briefly slipped to a day's low of $1.5421 from near $1.5440 on the remarks before trimming those losses.

DOLLAR-OIL NEXUS

Oil prices have rallied in tandem with a slide in the dollar, which has lost nearly half its value against the euro in the past six years.

An International Monetary Fund study shows gold and oil prices rise by more than 1 percent for every 1 percent decline in the dollar.

The Dallas Federal Reserve said in a paper last month the weaker dollar had contributed about a third of the $60 increase in oil prices between 2003 and 2007. The price of oil has doubled in 12 months to a record near $140 per barrel.

The dollar's influence on oil was believed to have been a reason for why the finance ministers of seven of the nation eight nations meeting in Osaka said in April they were concerned about the impact of sharp currency swings on the global economy and was watching exchange rates closely.

The United States has long held a policy of "benign neglect" -- speaking of the virtues of a stronger currency even while reaping the benefits of a weaker one through steady export growth.

Then 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 dollar closely with the Treasury, words that are rarely used by a top Fed official.

That was followed by Paulson saying he would not rule out dollar intervention.

Almost eight years have passed since the last coordinated intervention in September 2000 when the Fed, European Central Bank and Bank of Japan acted to stem the euro's decline. Intervention since then has only been on behalf of Japan.

The G8 groups the United States, Japan, Britain, France, Italy, Germany, Canada and Russia.

They will meet delegates from Australia and some emerging economies, such as Thailand and China, to discuss food and oil prices over dinner on Friday.

(Additional reporting by Eric Burroughs in Tokyo; Writing by Dayan Candappa; Editing by Rodney Joyce)