* Dollar index set to post biggest weekly fall in over a year
* Four-year low oil prices send Norwegian crown to three-week low
* Sterling lower after anti-EU UKIP wins parliamentary seat
By Jemima Kelly
LONDON, Oct 10 (Reuters) - The dollar inched higher on Friday but was still on course to end a record-long rally with its first weekly fall in three months after Federal Reserve policymakers warned about the impact of the greenback's strength.
A further tumble in oil prices to a four-year low below $90 hit Norway's crown, which sank to its weakest in three weeks against the euro as September inflation data also dipped below forecast, undermining the case for any rise in interest rates.
The crown was last down 0.75 percent at 8.2760 crowns per euro, off a three-week low of 8.3041 crowns.
After surging around 10 percent in five months against a basket of currencies to reach a four-year high of 86.747 last Friday, the dollar has retreated more than 1 percent and is heading for its biggest weekly fall in over a year.
In a speech on Thursday, Fed Vice Chairman Stanley Fischer said the dollar's exchange rate was "appropriate" but added that the U.S. central bank would watch the currency for its impact on aggregate demand.
That followed minutes on Wednesday of the Fed's most recent meeting, which showed policymakers expressing concern that the dollar's strength could slow a necessary rebound in inflation. There were also worries about global growth.
The fact that the Fed was talking about the dollar was "very significant", said Stephen Gallo, European head of currency strategy at BMO Capital Markets in London.
"What the Fed did was verbally intervene in the currency markets," Gallo said.
Investors have taken the Fed's hints about the dollar as evidence it might bide its time on any rise in interest rates that would boost the currency, sending the dollar down and stocks up. Futures markets have pushed back expectations for a first rate hike to September next year from July.
DOLLAR WEAKNESS
All of that has made markets much more jittery, as seen in a jump in the CBOE volatility index, a measure of investor anxiety, to highs not seen since early February.
Analysts said the pick-up in volatility means the dollar's road higher is likely to get bumpier.
Societe Generale strategist Kit Juckes said the dollar has rallied too far, too fast since July, on the back of good data and a small change in the Fed's language.
In a note published on Thursday and titled "Don't buy the dollar, just sell the euro," Juckes said the European outlook has worsened, with recent data confirming that the Ukraine crisis and sanctions on Russia are hurting growth in Germany.