FOREX-US dollar falls for 2nd straight day as stocks weigh

* U.S. dollar reverses gains as stocks fall, oil rises

* U.S. producer prices rise, housing starts tumble

* Traders continue bout of dollar profit-taking (Updates prices, adds comment)

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 19 (Reuters) - The U.S. dollar weakened across the board on Tuesday, declining for a second straight session, as investors took advantage of weakness in U.S. stocks to further take profits on the greenback's recent steep gains.

The euro was on pace to post its best one-day gain in a month, while the dollar index was on track for its worst daily loss in about five weeks.

U.S. equities plunged after a brokerage forecast that Lehman Brothers LEH.N will likely take further write-downs of $4 billion in the third quarter due to losses from mortgage-related investments. A report showing sharply higher U.S. inflation also dragged down stocks.

U.S. crude futures rallied as well, trading more than 2 percent higher at $115.68 per barrel CLc1, depressing the dollar further.

"The euro was due for a bounce anyway against the dollar after its sharp losses," said Matt Kassel, director of foreign exchange at ING Capital Markets in New York. "And overall weakness in U.S. stocks is adding to dollar bearishness."

In midday trading, the euro <EUR=> rose half a percent to $1.4772, recovering from a six-month low of $1.4631 earlier, according to Reuters data.

Traders also cited a report by a U.S. think-tank suggesting that the European Central Bank may have to raise interest rates if euro zone inflation pressures do not ease. That prompted euro buyers to reemerge along with talk of major central bank bids for the currency at the $1.4650 level,

On the ICE Futures Exchange, the dollar index -- which measures its value against a basket of six currencies -- fell 0.4 percent to 76.773, after earlier hitting a new high for the year at 77.413 .DXY.

Against the yen, the dollar retreated 0.4 percent to 109.62 yen <JPY=>, while the euro was little changed versus the yen at 161.69 yen. Earlier, the euro hit a three-month low at 160.87 yen <EURJPY=>.

After the greenback's slide on Tuesday, traders have started to wonder whether this latest phase of dollar strength has run its course.

"It could be premature to suggest this is the end of the dollar's latest rally but the focus does now seem to be switching round to the fact the adjustment may be nearing an end," said James Hughes, a market analyst at CMC Markets in London.

He added that "disappointing U.S. data, such as...housing starts, will once again start to weigh on the fortunes of the greenback." Hughes was referring to a report on Tuesday showing U.S. home building projects started in July fell 11 percent to the lowest annual rate in more than 17 years, while building permits tumbled 17.7 percent.  Continued...