* Dollar strength as euro slides weighs on oil prices
* U.S. stocks dragged down by bank shares, weigh on oil
* US unemployment rate dips, jobs rise less than expected
* Coming up: CFTC positions data at 3:30 p.m. EST Friday
(Recasts, updates prices and market activity throughout)
By Robert Gibbons
NEW YORK, Jan 7 (Reuters) - U.S. crude oil prices reversed
from early gains and fell on Friday in volatile trading,
dropping below $88 a barrel as the dollar gained strength
against the euro and Wall Street equities fell.
Markets were buffeted as investors digested a government
report showing the U.S. unemployment rate declined but that
fewer jobs than expected were added in December.
Brent crude had steeper losses as a Thursday fire halted
production at a Canadian Natural Resources Ltd <CNQ.TO> oil
sands facility in Alberta, one factor that prompted investors
to unwind positions that had sent Brent's premium to U.S. crude
soaring.
U.S. oil prices retreated from a 27-month high above $92
which was set on Monday and were on track to end the week about
4 percent lower. That would be the biggest weekly percentage
loss since mid-August.
U.S. crude oil for February delivery <CLc1> fell 88 cents,
or 1.0 percent, to $87.50 a barrel at 1:56 p.m. EST (1856 GMT),
trading as low as $87.25, its lowest since hitting $87.01 on
Dec. 17. Friday's intraday peak was $89.48.
In London, ICE Brent crude for February <LCOc1> fell $1.557
to $92.97 a barrel, trading from $92.59 to $94.58.
The spread between Brent and U.S. crude <CL-LCO1=R>
remained above $5 a barrel.
EURO WEAKNESS HELPS BOOST DOLLAR
The euro fell to a near four-month low against the dollar,
hit by uncertainty about the use of euro zone bonds of
peripheral countries as collateral for bank loans and as U.S.
employment data supported a stronger outlook for the dollar
than the euro. []
Like oil prices, the dollar seesawed on Friday and
initially gave up gains against the euro following the U.S.
jobs data before recovering.
The U.S. government's December jobs report showed nonfarm
payrolls rose 103,000 in December, below analysts' forecasts
for 175,000 new jobs, but the unemployment rate fell to 9.4
percent from 9.8 percent in November, its lowest rate in 1-1/2
years. []
Oil and equities prices were initially supported by Federal
Reserve Chairman Ben Bernanke's cautiously optimistic comments
about the economic recovery in testimony before a Senate
committee after the jobs report.
Bernanke's gave his first testimony to Congress on the
economy since the Fed launched a controversial plan to buy an
additional $600 billion in government bonds.
(Additional reporting by Gene Ramos in New York, Zaida Espana
in London and Alejandro Barbajosa and Florence Tan in
Singapore; editing by Jim Marshall)
