UPDATE 5-Oil surges as dollar slumps, equities rise

                                
 * Dollar slumps broadly, helping to lift oil
                                
 * Rallying U.S. equities boost oil market
                                
 * Coming up: CFTC positions data, 3:30 p.m. EDT Friday
 (Recasts, updates prices, market activity, changes byline and
moves dateline from previous LONDON)
                                
 By Robert Gibbons
                                
 NEW YORK, Sept 24 (Reuters) - Oil prices rose sharply on
Friday on the back of a sliding dollar as investors continued
to anticipate the U.S. central bank will pump billions of
dollars into the financial system to support the faltering
economic recovery.
                                
 The dollar fell against a basket of currencies <.DXY> to
its lowest level since February. [USD/] A weak dollar can lift
dollar-denominated oil prices because it improves the
purchasing power of consumers using other currencies and
lessens the value of greenbacks paid to producers.
                                
 A surprise rise in Germany's Ifo index of business
sentiment [ID:nLDE68N0L3] bolstered oil early and rallying U.S.
equities markets on the back of a rebound in business spending
and steady August home sales contributed to oil's gains. [.N]
                                
 U.S. crude for November <CLc1> delivery rose $1.20, or 1.6
percent, to $76.38 per barrel by 12:33 p.m. EDT (1633 GMT),
having traded from $74.66 to $76.64.
                                
 That $76.64 intraday peak was the highest since $77.99 was
struck on Sept. 14, when prices had been lifted by the shut
down of a pipeline carrying Canadian crude oil to the United
States.
                                
 ICE Brent November crude <LCOc1> rose $1 to $79.11 a
barrel, having traded as high as $79.40.
                                
 "Oil is higher on the back of the weak dollar," said Phil
Flynn, analyst at PFGBest Research in Chicago.
                                
 "The increased odds of quantitative easing (by the Fed)
adds to the expectation that the dollar will be weaker. The
market seems to have priced in the high inventories and weak
demand and turned its focus back to the dollar."
                                
 Under quantitative easing, central banks flood the banking
system with masses of money to promote lending. They usually do
this when lowering official interest rates no longer is
effective because they already are at or near zero.
                                
 The U.S. Federal Reserve said on Tuesday it would keep
interest rates exceptionally low and that the central bank was
prepared to provide additional accommodation if needed to
support recovery. [ID:nN20109053]
                                
 Federal Reserve chairman Ben Bernanke is due to speak on
the implications of the 2008 financial crisis at Princeton
University at 4:30 p.m. EDT (2030 GMT) on Friday.
                                
 The U.S. economy's recovery from the deepest recession
since the 1930s has stalled in the second quarter, with
sluggish growth and unemployment remaining stubbornly high,
dampening expectations for a recovery in oil demand.
                                
 U.S. total petroleum inventories last week reached their
highest since weekly records began in 1990, according to the
U.S. Energy Information Administration. [EIA/S]
                                
 Since May, crude prices have been hemmed in between the
$64.24 intraday low on May 20, the weakest front-month price
since July 30, 2009, and the 2010 peak of $87.15 set on May 3.
(Graphic on crude's price range:
http://link.reuters.com/ket35p)
                                
 The U.S. durable goods and home sales reports on Friday
received a mixed reaction. Orders excluding transportation rose
and business spending were up in August and were interpreted as
signs of an improvement, despite overall orders falling.
[ID:nN24184114]
                                
 However, a separate report showed new home sales were flat
in August after sharp declines in July.
                                
 Christophe Barret, oil analyst at Credit Agricole-CIB in
London said the impact of QE might only be short-term because
it "has nothing to do with (oil) fundamentals. It's just a
monetary phenomenon."
                                
 However, Barret also said that weak U.S. economic data
could counter-intuitively help oil prices in the short term, by
increasing expectations the Federal Reserve will act.
                                
 STORM WATCH
                                
 Oil analysts and broker also noted support from a tropical
storm in the Caribbean Sea, which could disrupt Mexican
infrastructure but is not expected to threaten U.S. energy
operations in the Gulf of Mexico.
                                
 Tropical Storm Matthew strengthened over the western
Caribbean and was expected to hit Nicaragua and Honduras later
on Friday, the U.S. National Hurricane Center said.
                                
 It was expected to shift north after this toward the
Yucatan Peninsula, and lose force before reaching the Gulf of
Mexico, where most of Mexico's oil wells are located.
[ID:nN24198021]
 (Additional reporting by David Turner in London and Alejandro
Barbajosa in Singapore; Editing by Lisa Shumaker)