Oil prices fell on Monday after U.S. crude hit its highest level since September 2008, as investors took profits on a sell off in silver from near record highs.

Spot silver fell sharply off a session high on technical selling triggered after it failed to breach 1980 highs.

Earlier in the day, oil and commodities had risen as inflation fears weakened the dollar and as markets eyed continued unrest in Libya, Nigeria and the Middle East.

On Monday, the dollar index <.DXY> measuring the greenback against a basket of currencies bounced into positive territory after silver turned back.

Continuing unrest in the Middle East and OPEC member Nigeria underpinned oil, highlighting potential threats to supply.

Silver's sell off spilled over to crude markets and traders took profits, said Dan Flynn, analyst at PFGBest Research in Chicago.

Brent crude for June fell 69 cents to $123.30 a barrel by 12:17 p.m., after reaching $124.75.

U.S. crude for June fell 45 cents to $111.84, retreating from an early $113.48 peak, the highest intraday price since September 2008.

It looks like we're seeing some technical selling after touching -- but failing to really break above -- the previous high, with some maybe seeing the risk of a double-top, said Andy Lebow, broker at MF Global in New York.

Monday's early U.S. peak only eclipsed the 2011 peak from April 11 by 2 cents.

It's a quiet market with London out. With the dollar coming off its lows, it's not surprising to see a little profit-taking, added Lebow.

Trading volumes were tepid at midday in New York, with total U.S. crude volume just above 200,000 lots, 67 percent below the 30-day average, according to Reuters data. Brent volumes were 80 percent under the 30-day average.

The light volume came as investors returned from a long holiday weekend and ahead of a U.S. Federal Reserve two-day policy meeting this week.

The Fed will has scheduled a news conference for Wednesday, as investors seek clues about the outlook for monetary policy as the Fed's bond buying program nears its end in June.

Oil supply worries stemming from geopolitical turmoil have buoyed oil and precious metals, as have expectations the dollar would remain pressured as other central banks moved to tame inflation more aggressively than the Fed.

But the threat to oil demand from high prices contributed to oil's recent seesaw trajectory. In recent weeks, prices have slumped, then rebounded, after key forecasters, including Goldman Sachs, said lofty prices were hindering consumption and that price corrections could be expected.

SUPPLY THREATS REMAIN

NATO forces flattened a building in Muammar Gaddafi's compound, while forces loyal to the Libyan leader have bombarded the western rebel stronghold of Misrata.

In Syria, a small non-OPEC oil producer, troops and tanks stormed Deraa, residents said, moving to crush resistance in the city where a month-long uprising first erupted against the rule of President Bashar al-Assad.

In Yemen, neighbor to top oil exporter Saudi Arabia, security forces opened fire to block a thousands-strong protest amid uncertainty over a Gulf plan for President Ali Abdullah Saleh to step down within weeks.

More than 500 people were killed in post-election violence in OPEC-member Nigeria, Africa's top producer, according to a human rights group.

Nigeria's production is often under threat from militant groups and sees turmoil increase during election season.

OPEC has signaled that members with spare capacity are ready to pump above agreed limits if there is a need. But despite Libya's civil war and other potential supply threats, Gulf delegates told Reuters the producer group is unlikely to formally change output targets at a meeting in June.

(Additional reporting by Gene Ramos and David Sheppard in New York, Barbara Lewis in London and Florence Tan and Manash Goswami in Singapore; Editing by John Picinich)

Silver