UPDATE 3-Oil falls towards $72 as dollar rises

                                
 *Rising dollar halts two-day rally
                                
 * Market eyes colder weather forecasts in eastern U.S.
                                
 * U.S. jobs data due at 1330 GMT
                                
 
                                
 (Updates prices)
                                
 By Emma Farge
                                
 LONDON, Dec 17 (Reuters) - Oil fell towards $72 a barrel on
Thursday as the dollar rose to a three-month high against the
euro, outweighing a surprise drop in U.S. distillate stocks
ahead of an expected cold snap.
                                
 The U.S. Federal Reserve left interest rates unchanged but
its optimistic comments on the economy on Wednesday fuelled a
dollar rebound. [USD/] [ID:nN16119711]
                                
 Oil prices tend to fall when the dollar rises because it
makes it more expensive for buyers holding other currencies.
                                
 "The big story is the dollar/euro figure which has pulled
down other commodities with it," said oil trader Rob Montefusco
of Sucden Financial, adding that bearish sentiment was tempered
by forecasts for cold weather in the eastern United States.
                                
 U.S. crude for January delivery <CLc1> fell 54 cents to
$72.12 a barrel by 1143 GMT after falling more than $1 earlier.
ICE Brent futures <LCOc1> shed 48 cents to $73.81 a barrel.
                                
 Oil prices closed below the psychologically important $70 a
barrel on Monday after falling nearly $10 over nine sessions but
prices recovered later this week.
                                
 The rebound was prompted by declining U.S. crude inventories
which fell by 3.7 million barrels compared with an expected drop
of 1.8 million barrels, data from the Energy Information
Administration showed.
                                
 Distillate stocks which include diesel and heating fell by
2.9 million barrels, far exceeding forecasts for a 600,000
barrel drop. [EIA/S]
                                
 A further drawdown in distillate stockpiles could be on the
cards, after a 10-day National Weather Service forecast this
week called for unseasonably cold weather in most of the eastern
United States, the world's biggest regional consumer of heating
oil.
                                
 "If demand starts coming through we could have some little
spikes. When you have to crank up refinery runs you should see
more crude draws and the distillate overhang coming down," said
Montefusco.
                                
 (Click on the link for a graphic showing the relationship
between U.S. crude stocks and the oil price
http://graphics.thomsonreuters.com/129/OIL_CSTKPL1209.gif)
                                
 For now, analysts expect $70 a barrel to remain an important
support level for oil and say prices could rally again if U.S.
weekly jobs data due at 1330 GMT points to further signs of
economic recovery in the world's top fuel consumer.
                                
 On the supply front, the Organization of the Petroleum
Exporting Countries (OPEC), which pumps around one in three
barrels of crude consumed around the world, meets in Angola to
discuss production policy on Dec. 22 and is widely expected to
keep output unchanged. [ID:nLDE5BC05U]
                                
 Oil prices are now more than double the low of $32.40 a
barrel touched in December 2008.
 (Additional reporting by Jennifer Tan; editing by Keiron
Henderson)