* China manufacturing PMI rises to seven-month high
* Technicals show oil may drop towards $83 []
* Coming Up: US EIA oil inventory report; 1530 GMT
By Alejandro Barbajosa
SINGAPORE, Dec 1 (Reuters) - Oil was steady near $84 on
Wednesday, capped by a stronger dollar as financial markets
remained focused on Europe's debt problems, while an industry
report signalled a drawdown in U.S. fuel inventories may be
slowing.
U.S. crude for January <CLc1> edged up 12 cents to $84.23
a barrel by 0244 GMT, after tumbling 2 percent on Wednesday.
Prices still posted a third straight monthly gain, up by more
than 3 percent in November, when they also touched a 25-month
high of $88.63. ICE Brent <LCOc1> gained 5 cents to $85.97.
Factories in China, the world's second-largest oil user,
raised output in November as shown by the official purchasing
managers' index (PMI), which climbed to a seven-month high.
But rising input prices also signalled a need to tighten
monetary policy to curb inflation, a move that would cut
energy demand.
The euro suffered yet another setback on Wednesday, with
the dollar up by more than 0.1 percent against a basket of
currencies , after Standard & Poor's threatened to cut
the credit ratings of Portugal, inflaming a market already
rocked by worries about Europe's debt crisis.
"Weak equities and dollar strength capped the upside as
fundamentals suggest physical supplies would remain adequate,"
said Stefan Graber, a commodities analyst with Credit Suisse
in Singapore. "In the U.S., inventories of crude oil,
distillates and gasoline all remain above their five-year
average."
Inventories of distillates including heating oil diesel
unexpectedly rose by 224,000 barrels last week in top consumer
the United States, according to an industry report published
Tuesday by the American Petroleum Institute (API).
Should the increase be confirmed in a government report
from the Energy Information Administration (EIA) due on
Wednesday at 1530 GMT, that would end a streak of nine
consecutive weekly drops. The average forecasts from a Reuters
poll of analysts is for a decline of 1.1 million barrels.
Gasoline stockpiles rose 1.1 million barrels last week
according to the API, almost three times the projected
400,000-barrel gain.
U.S. crude inventories fell by 1.1 million barrels in the
week through Nov. 26, the API said, compared with expectations
for a 900,000-barrel decline.
A drawdown of a bigger magnitude than that reported by the
API "would bring oil inventories closer to their five-year
average, which might provide the market with a positive
impulse," Graber said.
U.S. consumer confidence rose in November to its highest
in five months and U.S. Midwest business activity grew faster
than expected, providing further evidence of economic recovery.
Still, a faster-than-expected fall in prices of U.S.
single-family homes in September underscored the hurdles
remaining for the recovery. []
S&P's warning about Portugal came after Ireland on Sunday
secured an 85-billion-euro bailout package from the European
Union and International Monetary Fund, seven months after
Greece was thrown a lifeline to tackle its debt problems.
(Reporting by Alejandro Barbajosa; Editing by Himani Sarkar)
