* U.S. jobless claims fall, factory activity rises
* Spain debt worries, euro zone contagion fears weigh
* Markets re-evaluate fall in U.S. crude oil inventories
(Recasts, adds new by-line, changes dateline previously
LONDON)
By Gene Ramos
NEW YORK, Dec 16 (Reuters) - Oil prices slipped on Thursday
but held above $88 a barrel, amid signs of pre-yearend book
squaring and as the dollar reversed to the upside after a slew
of positive U.S. economic data.
Investors also reassessed Wednesday's data showing a sharp
crude stock inventory drawdown, noting it was tax-driven and a
one-off event that will give way to higher supplies in the
coming weeks.
U.S. crude for January delivery <CLc1> dropped 30 cents to
$88:32 a barrel by 12:50 p.m. EST (1750 GMT). The contract is
expiring on Monday, which added pressure.
U.S. oil prices hit a two-year high of $90.76 early last
week. Since then they have fallen toward $88, revealing a
pattern of long liquidation ahead of year end, analysts said.
U.S. heating oil futures, usually the season's price
leader, edged slightly higher. But buying was tempered by
forecasts for moderating temperatures in much of the United
States after a deep freeze in the East Coast this week.
"Some degree of December book squaring ahead of the year end
may be adding a flow of profit taking to the mix, but traders
might also be wary of the price performance itself after the
market failed to translate the larger-than-expected 9.9 million
barrel drop in DOE crude stocks for last week into more of a
rally," said Tim Evans, energy analyst at Citi Futures
Perspective in New York.
In London, ICE Brent for January <LCOc1>, which expires
Thursday, fell 8 cents to $92.12 a barrel.
DOLLAR SHIFTD HIGHER ON U.S. DATA
The dollar recovered earlier losses on the day's
encouraging U.S. economic data as bond yields rose, helping
pressure oil prices. []
U.S. economic reports showed jobless insurance claims fell
for a second week, factory activity in the Mid-Atlantic region
surged this month at its quickest pace in more than 5-1/2 years
and housing starts rose in November. []
A stronger dollar can often pull down dollar-denominated
oil prices as it makes fuel more expensive for holders of other
currencies.
The euro rose early as a European Union summit started to
discuss the region's debt crisis, but fell back on persistent
worries about fiscal stability. Investors were cautious a day
after ratings agency Moody's warned that it might downgrade
Spain's credit rating.
The U.S. Commodity Futures Trading Commission, which
regulates the nation's commodities markets, on Thursday set out
steps to carry out position limits, seen as an aggressive move
to prevent speculators from distorting commodity markets. But
the CFTC relented on several measures that were opposed by Wall
Street banks and big traders. []
There was no impact on oil prices when the agency released
its proposals for a 60-day public comment period.
(Additional reporting by Robert Gibbons in New York; Una
Galani in London; Rebakah Kebede in Perth, Australia; Editing
by David Gregorio)
