It could also hit the currency through the continued expectation that, just like Asian central banks, those of oil- producing countries will seek to diversify their increased dollar- denominated reserves.

"The timing and extent of any diversification operation by [oil-producing] central banks remains uncertain, but it will remain a long-term negative factor for the dollar," said Ian Stannard, a senior currency strategist with BNP Paribas in London.

The whole issue of diversification came to the fore once again this week as the price of crude oil soared back over US$65 (HK$504) a barrel and the South Koreans confirmed just how quickly they have been building reserves since the start of the year.

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Although the price of crude oil rose to more than US$70 a barrel last autumn after Hurricane Katrina's devastation of the oil-producing Gulf coast of America, analysts are concerned that the current rally could prove just as prolonged.

The immediate jump in prices was triggered by fresh attacks by armed militants on oil installations owned by Royal Dutch Shell in Nigeria.

This follows an attack on a crude pipeline last week and has forced the evacuation of about 330 staff from the region and reduced the country's oil production by about a tenth.

Yet, analysts are probably even more concerned about the effect on prices from Iran's resumption of its nuclear research program despite international objections.

With the United Nations now considering sanctions against Iran, the country is calling on the Organization of Petroleum Exporting Countries to cut production quotas, with Iranian Economy Minister Davoud Danesh-Jafari warning that sanctions could raise prices "beyond levels the West expects."

"The Iranian crisis will remain front-page news as a game of hardball diplomacy continues," said Brendan Brown, chief economist with Mitsubishi UFJ Securities International in London.

Over at Calyon Corporate and Investment Bank, global head of energy market research Mike Wittner is also braced for a prolonged game.

"The crisis will drag on for at least another six months before oil sanctions become a real possibility," he said.

But while he expects the price of crude to remain firm, he does not see it racing off into the stratosphere. Wittner forecasts the price of West Texas Intermediate crude, the US benchmark, remaining steady around US$60 a barrel in the first quarter and even falling back to US$55 in the second quarter.

But that is enough for those wary about the fate of the rising reserves in oil producers.

"With oil prices appearing set to remain at elevated levels these dollar revenues into oil producing countries are set to continue at a strong pace," BNP Paribas' Stannard said.

And all this is happening at the same time as the rally in Asian currencies is translating into a sharp rise in reserves there too.

The extent to which some Asian central banks may have intervened since the start of the year was made apparent by South Korea Tuesday, when it reported a sharp US$4.27 billion rise in reserves during the first two weeks of the year.

Given comments by Asian central banks in the past that they would seek to use other currencies for their new reserves, given the fairly widespread assumption that the dollar is in decline, analysts are now looking for another set of central banks anxiously looking to dump their dollars.

Pointing to the level of South Korean intervention Mansoor Mohi-uddin, senior currency strategist with UBS in London, said: "This is likely to be rebalanced into other foreign currencies to the detriment of the greenback against the majors."

Early Wednesday, another rally in the price of crude was taking the shine off the dollar's earlier gains on the latest collapse in Japanese stock prices and new political pressure on the European Central Bank not to raise interest rates again.

The price of crude futures on the New York Mercantile Exchange was up another 28 cents from the New York close at US$66.59 a barrel. DOW JONES NEWSWIRES