LONDON (AFX) - The dollar was weaker across the board in early London trade, reacting negatively to escalating tensions in the Middle East and rising oil prices, dealers said. "The dollar's normal safe haven role at times of military tension is currently not playing out as the US is one of the key political losers of the current escalation," said Michael Klawitter, analyst at WesLB research. "This sentiment is unlikely to change in the near-term although the downside risks are limited ahead of friday's labour market report," he added. "Tensions in the Middle East are leading to weaker equity prices as the market starts to fear the implicit fiscal tightening that higher oil prices imply," said Shahab Jalinoos, strategist at UBS Warburg. With the US still dependent on capital inflows because of its larger current account deficit, anything that threatens those inflows, such as weaker stock prices, is a dollar negative, he added. Meanwhile the euro mananged to hold above the 0.88 usd level, but merely benefiting from a weaker dollar, dealers said noting that speculative accounts were still holding long euro positions. The market decided to ignore the euro zone purchasing managers' index for services, which rose to 53.1 in March from 51.5 in February. The business expectations component rose to 72.0 - the highest since August 2000, compared from 69.7 in February. Separately, Jalinoos reckons the euro is more likely to be hurt by rising commodity prices than the dollar. "If oil prices do keep rising, Europe will probably take a bigger hit than the US from that because the European economy is structurally less flexible than the US economy. Oil price hikes are more likely to pass through to final prices," he said. He believes the European Central Bank takes oil prices as an inflation threat more seriously than the US Federal Reserve, and is therefore likely to react to the threat with tighter monetary policy earlier. "From a growth prospective for Europe, higher oil prices are probably more negative than they are for the US. In the long-term none of the development that we've seen can be considered euro positive," he added. The ECB is widely expected to leave interest rates unchanged at 3.25 pct at today's meeting. However all ears will be tuned to president Wim Duisenberg's speech at the subsequent press conference, at 1.30 pm. Dealers expect sterling and the Norwegien krona to keep on firming against the euro, deriving some positive sentiment as oil producing countries in this crisis environment. Of news, UK house prices showed a rise of 0.9 pct in March, according to Nationwide house price index. Klawitter said the data confirmed market expectations that the BoE may be the first major central bank to hike rates. This will provide ongoing support to sterling versus the euro, he said. The Bank of England's rate announcement should have little market impact as hardly anyone is expecting a change in interest rates at none today. Finally the yen was also firmer, still benefiting from rapatriation flows from Japanese institutions, dealers said.