* Euro-zone debt contagion fears persist
* Dollar gains, then slips on corporate euro buying
* Volume light, U.S. markets close for Thanksgiving
(Updates prices, adds quote)
By Zaida Espana
LONDON, Nov 25 (Reuters) - Oil inched up in paltry trade on
Thursday, extending its biggest gain in four months as the dollar
edged lower, but ongoing concerns about the euro zone and Chinese
inflation threatened to limit gains.
U.S. crude for January delivery <CLc1> rose 32 cents to $84.18 a
barrel by 1900 GMT, after plumbing lows of $83.45 earlier. Total New
York Mercantile Exchange crude trade came to just 48,000 lots, less
than a tenth its average this year. All trade on Thursday will be
combined into Friday's official session.
ICE Brent <LCOc1> rose 41 cents to $86.25. Total trade of just
over 100,000 lots was about a quarter of the norm.
After falling sharply two weeks ago, oil prices found strong
technical support at around $80 a barrel, setting the stage for
Wednesday's 3.2 percent rally on pre-holiday short covering spurred
by inventory data that was less bearish than feared and upbeat U.S.
weekly jobs and consumer spending data.
"Technically, the action of the last two days definitely print
out a very strong defence of $80.50 a barrel as a support,"
Petromatrix' Olivier Jakob said in a note.
Continued worries about the ability of peripheral euro-zone
members to manage their debt weighed on the euro, which remained
close to a two-month low even after staging late gains that pulled
the dollar lower amid corporate buying.
In Europe, senior officials dismissed suggestions by some
commentators that the single currency area could break up. German
Chancellor Angela Merkel said she was more confident than earlier
this year that the European Union will emerge stronger from the
current crisis.
But German government bonds fell, pressured in part by the
possibility of further euro-zone bailouts, although the European
Commission said there were no discussions on financial aid for more
countries after Ireland asked for help.
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For an interactive timeline of the euro-zone debt crisis
http://link.reuters.com/kar27p
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DOLLAR DISCONNECT
The dollar index <=USD> slipped 0.21 percent, lending a measure
of support, although the normal inverse relationship between oil and
the greenback has weakened recently.
The average daily correlation over the last 25 days dropped to
-30 percent on Thursday, the weakest in over a month.
"Once again yesterday, we saw a disconnect between the dollar and
commodity prices in yesterday's trading," MF Global senior
commodities analyst Edward Meir said.
Oil tumbled to 2010 lows under $65 in May as the Greek debt
crisis dampened confidence about the global economic recovery, and
rebounded to a two-year high of $88.63 on Nov. 11.
Earlier this week, oil prices dropped to near $80 after North
Korea's deadly artillery barrage against a South Korean island
boosted the dollar's value and reduced the appetite for riskier
commodity assets.
(Additional reporting by Alejandro Barbajosa in Singapore; Editing
by Keiron Henderson and Jan Paschal)
