Oil bounces as dollar weakens

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Oil gained on Wednesday after two days in retreat, supported by a retreat in the dollar.

Brent crude gained 54 cents to $108.80 a barrel by 0957 GMT, after ending 81 cents lower on Tuesday. U.S. oil gained 34 cents to $85.72.

The dollar fell against the euro and yen, making oil, priced in the U.S. currency, more affordable to holders of other currencies.

The euro was supported on signs Greece would secure funding from international lenders for the rest of 2012, while Italy's borrowing costs fell to a two year low.

"The dollar's down, a lot of the bad data is priced in, and there is still supply disruption in the North Sea," said Christopher Bellew, analyst at Jefferies Bache.

Geopolitical tensions also supported prices, with fears that the Syrian conflict could spread to its neighbours.

Turkish fighter jets could be heard near the Syrian border on Wednesday on the third day of a Syrian air assault on the rebel-held frontier town of Ras al-Ain, Reuters reporters said.

Oil fell on Tuesday after the International Energy Agency cut estimates for global oil demand for the fourth quarter by around 300,000 bpd from last month's report in the wake of Hurricane Sandy and as Iran's production increased.

Global demand is now forecast to grow by 670,000 bpd this year and by 830,000 in 2013 to 90.4 million bpd - 100,000 bpd lower than last month.

Iranian oil output rose by around 70,000 barrels per day (bpd) to 2.7 million bpd in October, and exports recovered as China and South Korea bought more oil from the Islamic Republic, the IEA said.

Oil and broader financial markets have remained under pressure due to a U.S. fiscal policy standoff and uncertainty over the euro zone's debt problems.

U.S. lawmakers gathered in Washington on Tuesday to start talks on a deal to tackle the country's finances while Greece's international lenders gave the country more time to fix its budget, though they did not disburse the aid it had hoped to refinance its debt.

Investors were awaiting inventory data to give further insight on the demand/supply balance.

Crude oil inventories rose last week as big East Coast refineries were yet to resume normal operations after disruptions caused by Hurricane Sandy, a Reuters poll of analysts showed.

Crude inventories were seen up 1.9 million barrels in the weekly data from the federal Energy Information Administration, delayed by a day due to the Veterans Day holiday. (Additional reporting by Manash Goswami in Singapore, editing by William Hardy)



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