* Dollar index <.DXY> hits 10-week high as euro slumps
* Japan factory output disappoints as stimulus fades
* Technicals: prices may retrace to $84.50 []
* Coming Up: U.S. API oil inventory report; 2130 GMT
(Adds graphic, updates prices, detail)
By Christopher Johnson
LONDON, Nov 30 (Reuters) - Oil fell towards $85 on Tuesday,
consolidating as the dollar hit a 10-week high and the euro fell
on worries over the European debt crisis and concerns China may
raise interest rates and cap energy demand growth.
Traders were also looking for more evidence that U.S. oil
inventories would drain with a surge in demand for heating as
wintry weather swept across Europe and the United States.
Oil prices climbed 2.4 percent on Monday, led by futures for
heating fuels such as gas oil, as cold weather raised
expectations of higher fuel consumption on both sides of the
Atlantic.
U.S. crude for January <CLc1> slipped 30 cents to $85.43 a
barrel by 1120 GMT after rising $1.97 on Monday, when it briefly
touched $85.90, the highest price since Nov. 12. Prices reached
a 25-month high of $88.63 on Nov. 11.
ICE Brent <LCOc1> lost 17 cents to $87.17 after rising more
than 2 percent on Monday.
The dollar index against a basket of currencies reached its
highest level since mid-September as the euro <EUR=> tumbled on
continuing fears that Ireland's bailout might not help keep
Europe's debt woes contained. []
In euro terms, Brent reached its highest level for almost
seven months on Tuesday, climbing to above 67 euros per barrel.
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For a graphic of Brent in euros and the dollar index, click:
http://link.reuters.com/bef77q
For graphic of the components of the CRB commodity index:
http://graphics.thomsonreuters.com/F/08/CRB291110.gif
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"Oil rose on Monday on the cold weather but the dollar is
also rising and oil cannot continue to defy gravity forever,"
said Carsten Fritsch, commodity analyst at Commerzbank.
"Oil prices should remain under pressure but may not move
decisively until we get the U.S. oil inventory data."
U.S. INVENTORIES
An industry report on inventories from the American
Petroleum Institutes (API) is due on Tuesday at 2130 GMT,
followed by government statistics from the Energy Information
Administration on Wednesday.
U.S. crude oil inventories probably fell by 400,000 barrels
last week as imports dipped, a Reuters poll of analysts
suggested, but analysts were divided with an equal number of
them predicting a decline and an increase. []
Cold temperatures in the Northeast United States and
northwestern Europe provided a boost to London gas oil <LGOc1>
and U.S. heating oil <HOc1> distillate futures on Monday as the
U.S. December refined products contracts neared their Tuesday
expiration. []
China's key stock index fell 1.6 percent to close at a
seven-week low on Tuesday, with a shortfall of cash in the
domestic money market creating a liquidity squeeze in the stock
market. [] []
Analysts said the drying up of cash in the market was
prompting speculative retail investors, already on edge about
whether the central bank would introduce further tightening
measures, to sell heavily weighted financials and commodity
issues.
Factories in Japan and South Korea, Asia's second- and
fourth-largest oil users, cut output in October, adding to
evidence of a slowdown and boding ill for the rest of the world
that has relied on the region to keep the global economy
humming. []
(Additional reporting by Alejandro Barbajosa in Singapore;
editing by William Hardy)
