UPDATE 8-U.S. oil slips as dollar stronger, equities dip

                                
 * Dollar strength as euro slides weighs on oil prices
                                
 * U.S. stocks dragged down by bank shares, weigh on oil
                                
 * US unemployment rate dips, but jobs rise below forecast
                                
 * Coming up: API oil stocks data Tuesday, 4:30 p.m. EST
 (Recasts, updates price, market activity to settlement)
                                
 By Robert Gibbons
                                
 NEW YORK, Jan 7 (Reuters) - U.S. oil prices fell on Friday
in volatile trade as the stronger dollar and a stock market
slide erased earlier gains, and crude started the year with a
weekly loss.
                                
 Markets were buffeted as a government report showed the
U.S. unemployment rate declined and that while the economy
added jobs in December, fewer jobs were created than expected.
                                
 Brent crude posted steeper losses after a Thursday fire
halted production at a Canadian Natural Resources Ltd <CNQ.TO>
oil sands facility in Alberta, one factor that prompted
investors to unwind positions that had sent Brent's premium to
U.S. crude soaring.
                                
 U.S. crude oil for February delivery <CLc1> fell 35 cents
to settle at $88.03 a barrel, slipping from an $89.45 intraday
peak. Friday's $87.25 low was the weakest since prices fell to
$87.01 intraday on Dec. 17.
                                
 For the week, oil ended down 3.7 percent, the biggest
percentage loss since November. Crude ended 2010 up 15 percent
on the year and started 2011 on Monday at a 27-month peak.
                                
 Money managers sharply cut their net long crude futures
positions on the New York Mercantile Exchange in the week to
Tuesday from the previous period, the Commodity Futures Trading
Commission said late on Friday. [ID:nN07239934]
                                
 Total U.S. crude futures trading volume continued its
rebound after the holidays at just above 1 million lots traded
near the end of post-settlement trading, well above the 250-day
average of 670,799 lots, according to Reuters data.
                                
 Brent crude trading volume was just under 500,000 lots,
down from 630,000 lots on Thursday.
                                
 In London, on Friday ICE Brent crude for February <LCOc1>
fell $1.19 to $93.33 a barrel, trading from $92.59 to $94.58.
                                
 "The monthly employment report provided today's main
feature but interpretation of the numbers was mixed and the
equities came under pressure as the session progressed," Jim
Ritterbusch, president at Ritterbusch & Associates in Galena,
Illinois, said in a research note.
                                
 "This risk aversion was further facilitated by (near)
four-month lows in the euro."
                                
 EURO WEAKNESS HELPS BOOST DOLLAR
                                
 The euro fell against the dollar on concerns about using
euro zone bonds of peripheral countries as collateral for bank
loans and as U.S. employment data supported a stronger outlook
for the dollar than the euro. [USD/]
                                
 A stronger dollar typically pressures dollar-denominated
oil prices because it raises the value of currency paid
producers and makes oil more expensive for consumers with other
currencies.
                                
 The U.S. government's December jobs report showed nonfarm
payrolls rose 103,000 in December, below expectations, but the
unemployment rate fell to 9.4 percent from 9.8 percent in
November, its lowest rate in 1-1/2 years. [ID:nN06134458]
                                
 Oil and the stock market initially found support from
Federal Reserve Chairman Ben Bernanke's cautiously optimistic
comments about the economic recovery in his first testimony to
Congress on the economy since the Fed launched a controversial
plan to buy an additional $600 billion in government bonds.
                                
 But U.S. stocks stumbled as financials were hit by a court
ruling that voided two home foreclosures and on the jobs report
judged to be less than stellar.
                                
 BRENT-U.S. CRUDE DISCONNECT
                                
 The premium of Brent over U.S. crude prices fell to $5.30 a
barrel based on settlement prices, after the spread <CL-LCO1=R>
was as much as $6.56 intraday on Thursday, the widest since May
3, 2010.
                                
 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 Graphic of Brent's premium to U.S. West Texas Intermediate
                                
 crude futures:
                                
 http://r.reuters.com/nuw35r
                                
 John Kemp column on Brent vs WTI: [ID:nLDE70615A]
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 Analysts said Brent's price premium to U.S. crude was due a
correction from the high level reached as crude stockpiles
surged at the Cushing, Oklahoma, oil hub, delivery point for
the NYMEX light sweet crude contract.
                                
 Snags to supply from Canada were expected to help ease the
high stocks at Cushing and there was no estimate from the
Canadian Natural on Friday about on when the 110,000
barrel-a-day Horizon oil sands facility in Alberta would resume
production after Thursday's fire. [ID:nN07136192]
                                
 Traders and analysts said portfolio reallocations by index
funds also helped narrow the Brent-U.S. crude spread and
limited the U.S. crude price drop.
 (Additional reporting by Gene Ramos in New York, Zaida Espana
in London and Alejandro Barbajosa and Florence Tan in
Singapore; editing by David Gregorio)