* Dollar index hits lowest since early June of 78.396
* Gains in equities, oils lift euro, commodity FX
* Euro/dlr at 7-wk high, Canadian dlr at 10-mth high vs USD
* Focus on U.S. Q2 GDP at end of week
(Adds quotes, updates prices; changes byline)
By Jessica Mortimer
LONDON, July 27 (Reuters) - The dollar index fell to its lowest level since early June on Monday as gains in equities and oil encouraged investors to take on more risk, prompting strong gains for the euro and commodity-linked currencies.
European shares rose 0.6 percent, while oil prices came close to $69 per barrel, reaching their highest in more than three weeks as investors stayed optimistic on the global economic outlook.
This helped the euro to its highest since early June against the dollar, while gains in commodities helped propel the Canadian dollar to its strongest since October 2008. The Australian dollar also hit its strongest since early June against the U.S. currency.
Equity gains weighed broadly on the U.S. dollar and the yen, which typically fall when investors are more inclined to take on risk, while the euro was also buoyed as data showed German consumer sentiment at a 14-month high.
"We have started very much where we left off on Friday, with higher equities and greater risk appetite, while commodity-based currencies are doing well due to higher oil prices," said Kenneth Broux, market economist at Bank of Scotland Treasury.
"The performance of the euro has also been quite remarkable and we may be seeing a process of the euro catching up with many other pro-risk currencies," he added.
Investors were slightly wary, however, ahead of U.S. GDP data and record sales of U.S. Treasuries later in the week.
The market was also keeping an eye on talks between top U.S. and Chinese officials in Washington on Monday and Tuesday for any comments regarding the U.S. currency.
The dollar index, a measure of its performance against six major currencies, fell to a low since early June of 78.396.
Data from the Commodity Futures Trading Commission on Friday showed currency speculators nearly doubled their bets against the dollar in the week ended July 21, with the value of dollar net short positions reaching its highest since mid-July 2008.
The euro rose around 0.6 percent to hit $1.4299, its highest in more than seven weeks and not far off its 2009 peak of $1.4339 hit in early June. It also rose around 1 percent against the yen to its strongest in more than three weeks at 136.05 yen .
COMMODITY FX GAIN
Among perceived commodity-based currencies -- which are typically also seen as higher risk --, the Australian dollar climbed around 1 percent to a high of $0.8260, while the New Zealand dollar gained 0.6 percent to $0.6597.
The Canadian dollar -- which is particularly sensitive to movements in the oil price -- jumped as high as C$1.0778 per U.S. dollar, its strongest in nearly 10 months.
But analysts noted the recent surge in market optimism that has helped fuel a rally in equities may begin to fizzle out as caution sets in ahead of U.S. GDP data on Friday.
The numbers are expected to show the economy contracted for a fourth consecutive quarter in April-June, the first time that has happened in records dating to 1947. Forecasts are for a contraction at an annual rate of 1.5 percent.
Meanwhile, the U.S. Treasury sells a record $115 billion this week and the bond and currency markets are keen to see how demand holds up given rising stock markets and a potentially improving economic backdrop.
"Supply concerns could underpin dollar/yen on the week, and as long as 94.20 yen support holds, a target of 96.70 yen on the week is not unreasonable," said analysts at RBC Capital Markets.
Data on Monday meanwhile suggested there may be limited room for optimism on the euro zone economy as loans to euro zone businesses and households grew at the slowest annual pace on record in June.
Other data, however, showed German consumer sentiment rose to 3.5 in August, a 14-month high, from an upwardly revised reading of 3.0 for July, and higher than forecasts for 2.9. while German import prices fell by 11.3 percent year-on-year in June, the biggest fall since February 1987.
(Additional reporting by Tamawa Desai in London; Editing by Victoria Main)