UPDATE 3-Oil retreats from one-year high above $79

                                
 * U.S. crude touches year-high $79.05, then eases
                                
 * Some analysts say oil's 9 pct gains last week exaggerated
                                
 * Flurry of Wall St earnings to test market's mettle
                                
 
                                
 (Updates throughout, previous SINGAPORE)
                                
 By Chris Baldwin
                                
 LONDON, Oct 19 (Reuters) - Oil hit a year-high above $79 a
barrel on Monday, driven by bullish sentiment across financial
markets, but later slipped back as traders questioned whether
ample fuel supplies justified current price levels.
                                
 U.S. crude for November delivery <CLc1> touched a session
high of $79.05 in early trade, the strongest since October last
year, before paring gains to $78.24 by 0941 GMT, down 29 cents
from the previous close.
                                
 London Brent crude <LCOc1> dipped 37 cents to $76.62.
                                
 "The gains were overwhelmingly driven by financials and
market optimism rather than fundamentals," said analyst Richard
Gorry at JBC Energy in Vienna.
                                
 Crude oil prices have gained more than 10 percent since the
start of October, spurred as they have been for much of this
year by a weak U.S. dollar and a wave of bullish sentiment
across financial markets, interpreted by oil traders as
indicative of stronger demand for fuel.
                                
 The U.S. dollar is close to 14-month lows against the euro
and edged lower against a basket of currencies on Monday <.DXY>.
Commodities priced in dollars become cheaper to non-dollar
investors as the U.S. currency weakens, which has the effect of
driving up the nominal oil price as investors move in.
                                
 MSCI's benchmark all-country world stock index
<.MIWD00000PUS> was up around half a percent early on Monday,
recovering after investors were disappointed by from General
Electric <GE.N> and Bank of America <BAC.N> on Friday.
                                
 All the markets were expected to keep seeking direction from
further company results this week.
                                
 But the oil market is also mindful fuel demand is only
expected to recover gradually and that large volumes of oil,
including of refined products, are surplus following the
contraction in energy use triggered by financial crisis.
                                
 "OPEC spare capacity has reached 6 million barrels per day,
refining margins are depressed, OECD demand remains lacklustre
and the world has yet to come to terms with the massive middle
distillate stock surplus. Oil looks a little overblown at $79,"
JBC's Gorry said.
                                
 Oil stocks equate to around 62 days of forward demand, a
number that the Organization of the Petroleum Exporting
Countries once would have said was around 10 more than it would
like. [IEA/M]
                                
 At least some of the oil market's gains have come from
speculative flows, with money managers hiking net long crude oil
positions on the New York Mercantile Exchange in the week to
Oct. 13, the Commodity Futures Trading Commission said in a
report on Friday. [ID:nN16193961]
                                
 Other support came from signs of economic strength in China,
the world's second biggest energy user after the United States.
                                
 A senior official from the National Development and Reform
Commission said Chinese gross domestic product grew more than 7
percent in the first nine months of 2009. [ID:nBJC002361]
                                
 For wider evidence of economic health, investors will
scrutinise reports on September U.S. housing starts for release
on Tuesday and September existing home sales on Friday.
 (Additional reporting by Fayen Wong in Perth; Editing by
Barbara Lewis)