Oil prices fell below $75 a barrel on Monday as a rising dollar sent investors fleeing from risk and global markets began to speculate on a specific future date when the United States would raise its interest rates.

NYMEX crude for January delivery fell 92 cents to $74.55 a barrel by 1457 GMT (9:57 a.m. EST), retracing some losses after touching as low as $74.04 in heavy activity.

Brent crude was down 56 cents at $76.96 a barrel, after falling as low as $76.44 but still more than $2 above front month NYMEX.

What we're seeing...is a bit of dollar strength following on from Friday and a reaction in financial markets by oil, said broker Tony Machacek at Bache Financial.

The dollar hit a five-week high against a currency basket on Monday, extending its rally from Friday when strong U.S. jobs data fueled talk the Federal Reserve may consider winding down its stimulus measures.

Following the jobs data, investors are pricing in a chance that the Fed might raise interest rates in August, 2010..

The dollar has taken a beating for much of the year on the view that interest rates in the United States will remain low while those in other banking zones rise. This would increase the yield advantage of other currencies against the dollar.

European shares fell from a two-week closing high on Friday in a broad market sell-off as investor interest in risk assets began to fall, with the VDAX-NEW volatility index up 5 percent, signifying a lower market risk appetite. Oil was a bit odd on Friday, a little bit schizophrenic and couldn't decide whether the non-farms data was a good thing or a bad thing before it finally decided it was good, said David Morrison, an analyst at privately-held fund GFT in London.

Today it's right back to the familiar old relationship as we see the dollar rising.

Dollar strength makes commodities priced in the unit more expensive for holders of other currencies.

CONTANGO RISING

Saudi Arabia's oil minister Ali al-Naimi on Saturday described the current oil price as stable and perfect for consuming and producing nations alike at around $75 a barrel.

With no output changes expected at OPEC's Luanda meeting later this month, brimming stocks on land and an estimated 165 million barrels of crude oil and refined products in floating storage are sending investors further out along the oil futures curve in search of trading profits.

Regardless of weak fundamental data, speculative interest that had initially slightly cooled down during the past weeks rose again during the week to December 1st, analysts at Commerzbank wrote in their Commodities Daily note to investors.

The spread between first and second month U.S. crude, also known as West Texas Intermediate, or WTI, was nearly $1.90 higher, a market condition known as contango.

The number of netlong positions rose by nearly 10K to 125K contracts, said Commerzbank's Eugen Weinberg.

The forward contango for WTI is steepening with the 24th month contract last traded at $90.05 versus $89.74 on December 1, while the front month has fallen 4.3 percent from $79.04 this month.

For graphic showing steepening of the forward curve, click:

http://graphics.thomsonreuters.com/129/CMD_NYOIL1209.gif

(Additional reporting by Nick Trevelyan in Singapore, editing by Keiron Henderson)