* Canadian dollar, Norwegian crown both sharply lower
* Oil falls 3 percent after Friday recovery
* Euro and yen both up against the dollar
* Worries Fed could signal concern about economic outlook
By Patrick Graham
LONDON, Jan 25 (Reuters) - The dollar edged down against a basket of currencies on Monday as renewed selling on oil markets drove investors into their current safe havens of choice, the euro and yen, while weakening the currencies of major crude exporters.
After a reasonably upbeat session in Asia, stock markets quickly turned negative in Europe and oil was down almost 3 percent, driving roughly half percent falls in the Canadian dollar and Norwegian crown. CAD=D4 EURNOK=D4
The drop in crude turned the focus back onto the broadly negative view of the outlook for the world economy that has dominated financial markets since the start of 2016.
That has tended to benefit the euro, yen and Swiss franc at the expense of the dollar.
"We cannot sound the all clear, there is clearly a lot of uncertainty out there," said Commerzbank (DE:CBKG) strategist Thu Lan Nguyen.
"The main theme this morning is of commodity currencies being under pressure. A lot depends on the oil price. If we see a sharp drop back to the levels we saw last week, we can see another round of the market nerves we have been seeing."
The dollar fell around a third of a percent against its Japanese counterpart to 118.36 JPY= , well off last week's one-year low of 115.97 yen. The euro was also up about 0.4 percent at $1.0828 EUR=EBS .
The U.S. Federal Reserve is widely expected to leave its federal funds rate unchanged at 0.25-0.50 percent at the conclusion of its policy meeting on Wednesday.
Traders, however, will be more focused on whether the possibility of cooling inflation and recent global market turmoil could prompt the Fed to signal concern about the U.S. and world economic outlooks that may raise questions about its pace of interest rate tightening.
The recently risk-averse mood and volatile markets have led investors to pare bets on any more Fed interest rate hikes on the near horizon, and reduce their dollar positions.
Speculators reduced bullish bets on the dollar for a fourth straight week through Jan. 19, as net longs fell to their lowest level since late October, according to Reuters calculations and the latest data from the Commodity Futures Trading Commission, released on Friday. are concerned about both continued tightening and a U.S. recession. They likely only need to worry about one," Andrew Sheets, chief cross-asset strategist at Morgan Stanley (N:MS) wrote in a note to clients.
"Were the Fed to remind the market that it remains data-dependent, it could temporarily alleviate some of the pressure on USD," Sheets said.
The Bank of Japan will conclude a two-day policy meeting on Friday, at which sources familiar with its thinking say it is likely to cut its core consumer inflation forecast for the coming fiscal year to possibly below 1 percent. the BOJ is expected to hold policy steady this week, downbeat economic reports have increased market speculation of more easing by April. There was little sign of any conviction on that in yen price action on Monday, dealers said.