NEW YORK (AP) _ The dollar fell Thursday, weakened by a bout of pre-Easter holiday profit-taking and a senior Treasury official's warning against an expansion of the Japanese trade surplus caused by a cheaper yen.

The dollar also was pressured by a sell-off in the U.S. stock market, as well as new skepticism over Europe's proposed single currency and an upward revision in Germany's economic data that helped strengthen the mark.

``Today the story was dollar liquidation. Everybody wants to be out before the holidays,'' said Gabriel Grippo, chief foreign exchange dealer at Credit Agricole in New York.

The retreat largely erased the dollar's gains derived earlier in the week from the Federal Reserve's decision to raise interest rates for the first time in more than two years, a move that suggested further rate increases are looming. Higher rates make dollar-denominated assets more attractive.

Low volume in foreign-exchange dealings was partly responsible for exacerbating price movements, with many trading desks unstaffing early. Most financial markets are closed Friday and Monday.

``I think we saw some profit-taking on the dollar, but you have such a thin market that any order coming in might become exaggerated,'' said Jan Alvarez, senior currency dealer at Corestates Bank in Philadelphia.

In New York, the dollar settled at 123.48 yen, down from 124.12 yen Wednesday. The dollar cost 1.6736 marks, down from 1.6898. The pound cost $1.6315, up from $1.6287 and the highest level against the dollar in a month.

The dollar first fell sharply in Asian trading after Deputy Treasury Secretary Lawrence Summers warned of what he called dangerous possibilities if Japan's trade surplus increases and said Japan should take ``steps necessary for adequate growth.''

His remarks on PBS Television's ``Charlie Rose Show'' weren't new in themselves, but they were interpreted as a sign of growing U.S. concern that the dollar's increasing value against the yen is hurting American exporters by making their products too expensive.

The Summers interview also came just a week before a scheduled visit to Tokyo by Treasury Secretary Robert Rubin, who's considered the architect of U.S. dollar policy.

In European dealings, the dollar was hurt indirectly by more skepticism about the planned single currency, known as the euro, which is to debut in January 1999.

Jacques Calvet, president of leading French automaker Peugeot-Citroen, predicted the euro would collapse within months. Jean-Pierre Gerard, a member of the Bank of France's policymaking committee, said the euro should be delayed at least a year because Europe is too economically weak for the transition. The news helped the mark, Europe's predominant currency.

The mark was further helped by a Bundesbank report that showed German manufacturing orders rose faster in January than previously reported, another sign of possibly underestimated strength in Germany's economy.

Later in U.S. trading, the dollar came under further pressure by a sharp decline in the stock market that pushed the Dow Jones average down more than 200 points in late afternoon before it partly recovered to finish with a loss of 140.11 points.

``When it's quiet, people tend to follow the Dow,'' said Dennis Heidt, a foreign-exchange trader at Banque Paribas in New York. ``That, coupled with the thin market conditions, left the dollar lower.''

Despite the retreat, traders said the underlying conditions for the dollar's continued appreciation against the yen and mark _ higher interest rates and a healthy economy _ remain in place.

The dollar still finished the first quarter 6.5 percent higher vs. the yen and 8.6 percent higher vs. the mark compared with levels at the end of 1996. Compared with levels a year ago, the dollar is up more than 15 percent vs. the yen and more than 13 percent vs. the mark.

Other late dollar rates in New York compared with Wednesday: 1.4482 Swiss francs, down from 1.4657; 5.6250 French francs, down from 5.6945; 1,671.40 Italian lire, down from 1,684.00; 1.3788 Canadian dollars, up from 1.3738.