LONDON, Mar 5 Oil prices dropped $ 1 to below $ 61 a barrel on Monday as steep falls on A

LONDON, Mar 5 (Reuters) Oil prices dropped $1 to below $61 a barrel on Monday as steep falls on Asian and European stock exchanges spilled over into commodities markets.

U.S. crude was down $1.01 at $60.63 by 1042 GMT, off a session low of $60.46.

London Brent crude was down $1.04 at $61.04.

The trigger for the falls across virtually all markets was a surge in the Japanese yen, in an unravelling of the carry trade that has supported many recent investments.

Ultra-low interest rates in Japan had encouraged many investors to borrow yen and use the money to invest in high-yielding currencies and assets elsewhere.

Oil had been relatively immune to last week's stock market falls. It delivered a seven-session rally, that ended only on Friday, built on falling gasoline stocks in top consumer the United States and OPEC member Iran's standoff with the United Nations Security Council over its nuclear programme.

''Investors were cautiously hoping for the equities markets to steady this week but the Asian markets have continued to fall, so that's making people nervous,'' said Dariusz Kowalczyk, an analyst at Hong Kong-based CFC Seymour Ltd.

The FTSEurofirst 300 index of top European shares was down 2.15 percent at 1,431.82 points, hitting its lowest since Dec. 5 and taking losses to over 7 percent over the past week.

Earlier, Tokyo's Nikkei average fell 3.34 percent, marking its biggest one-day tumble in nine months and a new low for 2007, as investors continued to dump shares in exporters following the yen's rise.

Some oil investors are concerned economic growth could stumble and dent demand in the world's top two consumers, the United States and China.

''The key factor... is the outlook for global demand because some data on U.S. growth has been quite negative,'' Kowalczyk said, adding that investors are pulling out of commodities assets to switch to safer bets such as U.S. Treasuries.

Despite the retreat, oil prices remain near their highest in two months and well above their 20-month low in mid-January of under $50 a barrel.

Technical analysts at Barclays Capital, who study past price movements to determine future direction, said ''it increasingly appears that the decline off the 2006 high has been completed.'' They noted oil had ground out gains in recent sessions ''squeezing higher between the 59.65 21-day average and 62.20/50 resistance.'' OPEC meets on March 15 in Vienna, with most ministers favouring a rollover of current output levels.

''If the price at the moment will continue, I think OPEC will do nothing for the time being, we'll roll over,'' Qatar's oil minister Abdullah bin Hamad al-Attiyah said. ''I think $60 is a good deal for everybody, for producers and consumers.'' REUTERS CS DS1659