* Dollar index <.DXY> falls 0.2 percent
* S. Korea, U.S. start military drill; China calls for talks
* Coming Up: Eurozone Economic sentiment Nov; 1000 GMT
(Updates detail, previous SINGAPORE)
By Christopher Johnson
LONDON, Nov 29 (Reuters) - Oil rose to a two-week high above
$85 on Monday after the European Union approved a rescue for
Ireland and outlined a permanent system to resolve the euro
zone's debt crisis.
Worries that a spreading crisis within the euro zone would
keep a lid on growth and hence energy demand have helped
pressure commodities prices over the last week, pulling down oil
from a two year high of $88.63 on Nov. 11.
U.S. crude for January <CLc1> rose 1.5 percent or $1.27 to a
high of $85.03 a barrel before easing back to trade at $84.76 at
0845 GMT.
ICE Brent for January <LCOc1> rose 90 cents to $86.48,
returning to positive territory as the dollar weakened by 0.2
percent against a basket of currencies.
Finance ministers from the 16-nation euro zone, anxious to
prevent euro debt concerns engulfing Portugal and Spain,
unanimously endorsed an emergency loan package of 85 billion
euros ($115 billion) to help Dublin cover bad bank debts and
bridge a huge budget deficit. []
"The southern European sovereign debt crisis would have to
take a severe turn for the worse to derail positive commodity
price trends that are finding strong support from improving
fundamentals and positive market sentiment towards growth
assets" following the second wave of U.S. expansionary monetary
policy, Barclays Capital analysts said in a report.
Still, some market participants were wary that the package
for Ireland would fail to end Europe's credit problems, citing
the Greek crisis as a precedent of how markets initially reacted
positively to a bailout and then slumped.
"It is just a relief rally, but there are still so many
structural problems that people are already targeting other
dominoes like Portugal and Spain," said Michelle Kwek, an
analyst at Informa Global Markets in Singapore.
Currency and bond traders doubted the deal was enough to
prevent fiscally pressured Portugal and Spain from being next
in line to suffer a debt crisis. []
GEOPOLITICAL RISK RETURNING
South Korean President Lee Myung-bak on Monday labelled
North Korea's artillery attack on a west coast island a crime
against humanity and said the South would retaliate against any
further provocation. []
China on Sunday called for emergency talks to resolve the
crisis, and Seoul and Tokyo said they would study the proposal,
as the U.S. and South Korean militaries started a massive drill.
Tensions between North and South Korea have mostly been
bearish for the oil market because of the implications that war
would have on demand at the heart of Asia's top consuming
region. But other geopolitical events were having a mild bullish
effect on the market, traders said.
Saudi Arabia's King Abdullah has repeatedly urged the United
States to attack Iran's nuclear program and China directed
cyberattacks on the U.S., according to a vast cache of U.S.
diplomatic cables released on Sunday in an embarrassing leak
that undermines U.S. diplomacy. []
King Abdullah, being treated in New York for a blood clot
which complicated a slipped disc, has started rehabilitation and
his health is "very reassuring", the kingdom's health minister
said on Sunday. []
Enbridge Inc's <ENB.TO> 670,000-barrel-a-day Line 6A oil
pipeline in the U.S. Midwest was expected to run at reduced
rates until this week, creating another costly bottleneck for
Canadian crude exports, the company said on Friday.
[]
(Additional reporting by Alejandro Barbajosa; editing by Keiron
Henderson)
