* Oil above $66, below session highs
* U.S. distillate stocks rise more than expected
* China cuts interest rates, U.S. expected to cut
(Adds U.S. data, analyst comment, updates prices)
By Jane Merriman
LONDON, Oct 29 (Reuters) - Oil rose towards $67 a barrel on
Wednesday, as a weaker U.S. dollar and a rise in stock markets
overshadowed U.S. weekly data that showed a big jump in
distillate inventories.
Prices had advanced alongside European stock markets on
expectations that the U.S. Federal Reserve and other central
banks are poised to cut interest rates to revive global growth.
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China cut rates for the third time in six weeks, prompting
heightened speculation of coordinated bank action on rates.
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U.S. light crude for December delivery <CLc1> was up $4.21
at $66.94 a barrel by 1519 GMT. It had touched a session high of
$67.60. On Monday, it fell to a 17-month low of $61.30.
London Brent crude <LCOc1> was up $4.44 a barrel to $64.73.
"The U.S. inventory data was bearish overall because of a
rise in distillates and weak gasoline demand," said Christopher
Bellew, at Bache Commodities Limited.
U.S. distillate stocks rose by 2.3 million barrels last
week, more than the 800,000 increase forecast by analysts.
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Gasoline stocks fell by 1.5 million barrels, when a rise of
1.2 million had been predicted. Crude inventories were up
500,000 barrels, less than the 1.4 million barrel increase
expected by analysts.
Gasoline demand was down 3.4 percent over the past four
weeks versus the year-ago period, according to the Energy
Information Administration data.
FED IN FOCUS
But analysts said the impact of the U.S. data was muted
because investors were focused on the Federal Reserve's
anticipated rate cut.
"A big cut in the Fed Funds rate could pressure the dollar
and boost commodities with crude oil at the forefront," said
Chris Jarvis, senior analyst at Caprock Risk Management.
"In short, it's more about the dollar and the equity markets
than the weekly EIA data numbers."
Oil has fallen more than 50 percent from a record peak of
$147.27 in July, as the credit crisis has spilled over into the
real economy and dampened demand for oil in industrial
countries.
Merrill Lynch has cut its U.S. crude oil price forecast for
the fourth quarter of 2008 to $78 a barrel from $107 a barrel.
"Demand for physical commodities is tanking in many parts of
the world, with U.S. oil consumption contracting at the sharpest
rate since 1980," the bank said.
"More importantly, we are starting to see signs of oil
demand slowing in emerging markets."
China's rate cut provided evidence that the economic
slowdown is starting to affect emerging markets.
"There's building evidence in China that the slowdown we're
seeing everywhere else is taking place there as well," said
Derek Halpenny, European head of FX research at BTM-UFJ.
Oil and other commodities have been tracking stock markets
closely, using them as a gauge of investor sentiment on the
global economy and demand for raw materials.
"Energy is still very much in the orbit of the U.S. equity
market and has yet to decouple from it," said Edward Meir,
analyst at broker MF Global.
"If equities continue to gain ground, we would not be
surprised to see crude push higher in what could be an eventual
test of the $70 level," he said.
(Additional reporting by Maryelle Demongeot in Singapore;
editing by Anthony Barker)
