* Gulf states in talks on replacing dollar for oil - report
* Saudi c. bank chief says report "absolutely incorrect"
* Dollar falls against euro, yen
* Market awaits U.S. crude inventory report at 2030 GMT
(Updates throughout, changes dateline, pvs PERTH)
By Christopher Johnson
LONDON, Oct 6 (Reuters) - Oil prices rose toward $71 a
barrel on Tuesday, helped by a fall in the dollar after a report
that Gulf Arab states were in talks with other states to replace
the U.S. dollar with a basket of currencies in oil trading.
The report was rapidly denied by senior officials from
leading oil producers Saudi Arabia, Russia, Kuwait and the
United Arab Emirates.
A bounce in stock markets, spurred by a positive U.S.
services sector report on Monday, also helped improve investor
mood and rekindled hopes the recovery in the world's largest
economy was gaining traction.
U.S. crude for November <CLc1> rose 55 cents to $70.96 a
barrel by 0746 GMT, after gaining 46 cents to settle at $70.41
on Monday. London Brent <LCOc1> was up 55 cents to $68.59.
"Oil is taking directions from the U.S. dollar," said David
Moore, a commodities analyst at Commonwealth Bank of Australia.
The dollar fell on Tuesday after Britain's Independent
newspaper reported Arab states were in talks to end the use of
the dollar for oil trading. []
Quoting unnamed sources, including Gulf Arab and Chinese
banking sources, it said Gulf Arab states were in secret talks
with Russia, China, Japan and France "to end dollar dealings for
oil, moving instead to a basket of currencies including the
Japanese yen and Chinese yuan, the euro, gold and a new, unified
currency planned for nations in the Gulf".
"ABSOLUTELY INCORRECT"
But Saudi Arabia's central bank chief said the report was
"absolutely incorrect". Algeria's finance minister said there
was no need for a new currency in oil trade. []
[]
Analysts said ending the use of the dollar as the currency
used to settle oil trades between countries would be fairly
easy, but a move to replace the currency in which oil is priced
would require a massive effort.
For a snap analysis on replacing the use of the dollar for
oil deals, click on []
Dealers said oil prices appeared to be established in a
trading range of $65 to $75 a barrel with little sign of a break
out.
"Weak demand data is stopping prices rallying and maybe fund
support is stopping it sinking," said Christopher Bellew, oil
broker at Bache Commodities in London.
Brokers MF Global said in a note the macroeconomic
environment was weak enough to limit excessive rallies in a
number of commodity complexes, including crude.
"In addition, with Iran and Nigeria both moving to the
back-burner somewhat, it will be all the more difficult for
prices to push higher on geopolitical headlines, and so the
rallies we likely will see, will be technical in nature, with
questionable staying power," MF Global said.
Traders have been looking to macroeconomic data and equities
markets for signs of a potential end of the recession that could
boost consumption and draw down high oil inventories.
U.S. crude and product inventories likely rose last week,
according to a preliminary Reuters poll of analysts. []
The American Petroleum Institute will release its inventory
report on Tuesday at 2030 GMT, while the U.S. Energy Information
Administration (EIA) will publish its supply data on Wednesday.
Investors will keep a close watch on the U.S. weekly retail
sales data, the EIA energy outlook for October and the U.S. API
weekly crude stocks report to uncover more clues on the pace of
recovery in the world's largest energy consumer.
(Additional reporting by Fayen Wong in Perth; editing by
William Hardy))
