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SYDNEY, July 10 (Reuters) Oil edged below $74 a barrel on Monday, extending the previous session's 1.4 percent fall on expectations of progress in talks on Iran's nuclear programme.

Prices slid further back from Friday's record intra-day high of $75.78 on signs of easing tension between the West and Iran, with European Union foreign policy chief Javier Solana set to meet Iranian representatives on Tuesday.

U.S. crude futures fell 36 cents, or 0.49 percent, to $73.73 a barrel by 0415 GMT, while London Brent crude was down 32 cents to $73.19, having also touched a record-peak of $75.09 on Friday.

''We saw a big drop on Friday night as the Iranian talks kicked off,'' said Tobin Gorey, commodities strategist at the Commonwealth Bank of Australia. ''It's hard to want to short this market, but perhaps some of the reasons that drove us above $75 were seen to be flimsy, and investors locked into some profits.'' ''It's still not a result, with a long way to go, but some positive noises came out of early talks on Iran,'' he said.

The European Union said it expected a ''substantial response'' from Iran at talks this week on a package of incentives to end a nuclear stand-off, describing an initial meeting as constructive.

Iran's representatives said Friday's opening talks were ''very fruitful'', adding that the European Union could increase Tehran's confidence in the negotiating process by removing restrictions it had placed on exports of some industrial goods to Iran.

Strength in oil prices has been fuelled in part by tension arising from accusations that Iran has a secret programme to build nuclear weapons. Iran, the world's fourth-largest oil exporter, denies the charge and says its nuclear work is solely for power generation.

WAVES OF FUNDS Western powers have demanded Iran make a full reply to an offer of a package of incentives for it to halt nuclear enrichment by the time of a July 15 Group of Eight summit in St. Petersburg.

Oil in New York is up over 20 percent this year because of the Iranian dispute, supply cuts in Nigeria and a flood of investment fund money into commodities. North Korea's missile tests last week added to global tensions.

Adjusted for inflation, oil is more expensive than at any time since 1980, the year after the Iranian Revolution, with fresh waves of investment money entering the market.

''In the case of commodities, and specifically oil, the fundamentals have remained strong, which set the stage for renewed financial investment,'' said Mike Wittner, global head of energy market research at Calyon in a research note.

''First, new money came into the commodity space because it was the beginning of a new quarter'', he said. ''Second, as the last week of June progressed, an upward trend clearly developed, bringing the trend-following commodity trading advisers off the sidelines and back into the oil markets on the long side''.

Rebel attacks in Nigeria have shut almost a quarter of the country's output. Last week gunmen abducted a Dutchman who was working on an unfinished Shell plant in the world's eighth-largest oil exporter.

Prices have also been supported by resilient demand, with reports last week pointing to growth in U.S. gasoline demand even with retail prices hitting a one-year high on July 7, selling for nearly $3 per gallon for the first time since hurricane damage caused a shortage last summer.

NYMEX gasoline fell 0.87 percent to $2.22 a gallon.

REUTERS CS BD1120