SINGAPORE - Oil fell for a third day toward $70 a barrel on Tuesday as a firm dollar and stock market declines pulled prices further from eight-month highs.

The greenback hovered at one-month highs against the euro after weak data in the United States and Europe and a slide in global stocks prompted investors to cut bets on riskier assets on heightened caution about the economy.

U.S. crude fell 61 cents to $70.01 by 0448 GMT, staging its steepest three-day decline in a month, after optimism over an economic recovery drove prices above $73 a barrel last week.

London Brent crude for August delivery fell 43 cents to $69.81 a barrel.

Oil prices are following the dollar and equity markets. Inventory data is not out yet, said Michelle Kwek, an analyst at Informa Global Markets in Singapore.

The dollar firmed to a one-month high against the euro during early Asian trade, although paring some gains later, after the European Central Bank said euro zone banks would probably need to write down another $283 billion.

Gains in the dollar make oil more expensive for holders of other currencies and will pressure prices.

Asian stock markets fell, with Japan's Nikkei .N225 down 2.7 percent and a broad measure of regional shares down 2 percent, as investors worried a strong rally from March lows had run ahead of corporate prospects.

Traders will look out for weekly U.S. government inventory data on Wednesday, which is expected to show a 1.8 million-barrel fall in crude oil stocks, a 600,000-barrel rise in gasoline stocks and 900,000-barrel rise in distillate stocks, based on a preliminary Reuters poll.

The American Petroleum Institute (API) will issue its report later in the day.

Oil has risen from around $51 at the end of April to hit near eight-month highs on Thursday on growing optimism for the economy, with the latest data coming from the central banks of Japan and Australia.

The Bank of Japan upgraded its economic assessment as rising exports and output raise expectations the worst of the recession is over, while Australia saw no pressing need to cut interest rates given signs of stabilization at home and abroad.

But there were also concerns that speculation in the market had pushed oil prices up too high, too fast.

OPEC Secretary General Abdullah al-Badri said a too-quick rise in oil prices could harm a global economic recovery, though a price of $80 a barrel would not stem growth. The head of the International Monetary Fund, Dominique Strauss-Kahn, also sounded a cautious note, saying the worst of the global crisis was not yet over.

(Reporting by Chua Baizhen; Editing by Clarence Fernandez)

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