SINGAPORE, Jan 10 Oil price weakness knocked Asian energy shares on Wednesday and Japan's

SINGAPORE, Jan 10 (Reuters) Oil price weakness knocked Asian energy shares on Wednesday and Japan's Nikkei fell as much as 2 percent, as hedge funds sold a range of Asian stocks to cover losses on crude markets.

The dollar rose to a six-week high against the euro on receding expectations that the Federal Reserve will lower interest rates in coming months.

Crude was steady after hitting an 18-month low overnight.

Financial bookmakers expected London's FTSE 100 index to open as much as 0.4 percent lower.

Stock traders said hedge funds, which moved heavily into commodities in 2006, are hurting as crude prices tumble, and that some are selling stocks in Asia to cover their losses.

''It's hard to see the oil price firming up when we hear news like the temperature in the Central Park in New York hit 22 Celsius,'' said Norihiro Fujito, general manager at Mitsubishi UFJ Securities. ''There is a possibility that oil prices will move substantially.'' Traders in Taipei also noted hedge fund selling, and said some foreign investors were on hold ahead of earnings.

Tokyo's benchmark Nikkei average <.n225> ended down 1.7 percent, its biggest fall since Nov. 20, Hong Kong's Hang Seng <.hsi> eased by a similar amount, and MSCI's index of non-Japan Asian shares <.msciapj> was 1.5 percent lower at 0635 GMT.

Other major benchmark indexes in the region were down more than 1 percent as well.

IPHONE MUSIC IPod maker Apple's plans to launch a phone in June sent ripples through Asia's consumer electronics sector.

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Handset manufacturers such as Samsung Electronics and LG Electronics , down 1.4 and 2.7 percent respectively, were shaken by the prospect of Apple's dominant iPod portable music player technology appearing in a new competitor -- the iPhone.

But in Tokyo, mobile phone network operator Softbank gained 0.4 percent on talk it could be among the first to offer iPhone contracts, while Taiwan's Catcher Technology , a maker of phone casings, rose 5.2 percent.

Elsewhere on the Taipei market, weak December sales figures sent chip maker UMC down 2.3 percent in Taipei.

Oil stocks suffered. Top Chinese producer PetroChina dropped 3.2 percent and MSCI's index of Asian energy stocks outside Japan <.msciapjen> fell 2.1 percent.

DOLLAR UPTURN Dealers said investors bought back the dollar as last week's robust jobs data and other recent economic data strengthened views that the Fed was unlikely to cut rates any time soon.

''Investors see that recent strong data has removed justifications for a rate cut and the dollar continues to be supported by investors buying back the currency which had been oversold on rate-cut speculation,'' said Yuichiro Harada, a senior trader at Mizuho Corporate Bank.

The sharp drop in oil prices, which could help bolster U.S.

consumer spending, and selling of assets in emerging equities markets also lent support to the dollar, traders said.

The euro fell to a low of around $1.2953 , a level unseen since late November. The dollar was down a little against the yen at 119.22 , compared with 119.40 yen in late U.S. trade. The euro was down at 154.73 yen from 155.22 yen in late U.S. trade.

Asian currencies including the South Korean won, Taiwan dollar and Thai baht were all lower, undermined by the strong dollar and by declines in regional stock markets.

The won hit a 2-month low as Seoul shares <.ks11> dipped to a 12-week low.

As crude's slide caused ructions in other markets, the price of oil itself steadied. U.S. crude oil futures sat above $55 a barrel after falling as low as $53.88 on Tuesday, ahead of U.S. inventory data due out later on Wednesday.

The data is expected to show a fall in crude inventories and a rise in distillates and gasoline stocks.

U.S. shares closed little changed. The Dow Jones industrial average <.dji> was about flat and the Nasdaq Composite Index <.ixic> rose around 0.2 percent.

REUTERS PV DS1403