* Dollar index at 10-wk low ahead of Fed meet
* Technicals show U.S. crude in moderate rebound
* Coming Up: EIA weekly oil inventories at 1530 GMT
(Recasts, updates prices)
By Florence Tan
SINGAPORE, Jan 26 (Reuters) - Oil rose on Wednesday in a
technical rebound ahead of a statement from the U.S. Federal
Reserve that reaffirmed an improved economic outlook for the
world's largest oil consumer while investors await weekly stocks
data.
The dollar held near a 10-week low against a basket of
currencies as the Fed is expected to stay the course on
its $600 billion bond-buying plan.
A perception that the Federal will keep a much easier policy
than the European Central Bank, which is increasingly worried
about inflation, has helped boost the euro to near a two-month
high against the dollar.
A weak greenback makes dollar-denominated oil more
affordable for holders of other currencies.
But U.S. crude inventories probably rose last week, putting
a cap on prices.
U.S. crude oil for March delivery rose 39 cents to
$86.58 a barrel by 0426 GMT, after posting a 1.91 percent loss
on Tuesday, but is still on track for its first monthly decline
since August.
ICE Brent crude for March rose 50 cents to $95.75 a
barrel.
Traders will be watching closely to see if support levels
for Brent will hold in the next few sessions, Yusuke Seta, a
Tokyo-based commodity derivative sales manager at Newedge Japan,
said.
If Brent breaks the $95 support level, it will trigger a
sell-off similar to Tuesday's, he said, but prices may charge
towards $100 if a resistance at $96 is broken.
Reuters markets analyst Wang Tao said the technical outlook
for U.S. oil is weak while the U.S. dollar index is expected to
rise in the next four weeks.
Brent's premium to U.S. benchmark West Texas Intermediate
crude <CL-LCO1=R> remained firm at around $9 a barrel.
Brent will probably stay supported on lower crude
inventories in Europe and as investors prefer to put their money
in the European price marker over WTI, Newedge's Seta said.
This would keep the price spread between the two oil price
markers wide, he said.
U.S. crude stocks rose by 2.1 million barrels last week, or
more than expected as imports increased, industry data from the
American Petroleum Institute (API) showed on Tuesday.
Distillate stocks fell a whopping 5.0 million barrels and
gasoline supplies rose 1.7 million barrels, the API said.
Government data due at 1530 GMT on Wednesday could be
bearish, Seta said.
Analysts expect crude inventories to rise by 1.2 million
barrels in the week to Jan. 21, a Reuters poll showed.
(Editing by Clarence Fernandez)
