* Ireland debt downgrade weighs, euro sheds earlier gains
* German business sentiment highest level since 1991
* Investors winding down ahead of seasonal holiday
* Technicals show U.S. oil set to drop next week
(Adds new comment, updates prices)
By Una Galani
LONDON, Dec 17 (Reuters) - Oil hovered below $88 on Friday
as currencies fluctuated on the back of fresh concerns about
high levels of debt in the eurozone.
The euro was the main driver in an otherwise quiet market
for oil as investors began to wind down ahead of the seasonal
holiday, said Tony Machacek of Bache Commodities in London, who
added some stop-loss orders may have been triggered by earlier
gains in the session.
Investors broadly held their nerve after Moody's slashed
Ireland's debt rating and put the country, along with Greece, on
negative outlook warning that further downgrades could follow.
[]
"The currency factor is quite important right now for the
oil market. People are looking to the foreign exchange markets
and the euro is pushing down the dollar," said Tetsu Emori, a
fund manager at Tokyo-based Astmax Co Ltd.
By 1412 GMT, the euro relinquished earlier gains to trade
flat against the dollar which had, in turn, fallen 0.1 percent
against a basket of currencies <.DXY>.
U.S. crude for January <CLc1>, which expires on Monday,
climbed 15 cents to $87.83 a barrel. ICE Brent for February
delivery lost 5 cents to $91.56.
EU leaders meeting in Brussels failed to agree any specific
measure to stop contagion spreading from Greece and Ireland but
concerns were tempered by German business sentiment which rose
to its strongest level since 1991, according to a
closely-watched survey by the Munich-based Ifo think tank.
[] []
CONSOLIDATION MODE
Prices have also been supported by cold weather in much of
Europe while the U.S. Northeast, the top heating oil market, was
on track to have its ninth coldest December since 1950.
Oil and dollar-denominated commodities often move inversely
to the dollar; a weaker dollar typically lifts oil prices as it
lowers the value of greenbacks paid to producers.
"The recent long-side bias could likely be scaled back
somewhat, as hedge funds seek to close out both the quarter and
the year. This could result in prices working slightly lower as
we head into the year-end," said Edward Meir, a senior commodity
analyst at MF Global.
Technicals showed that crude was set to fall to $85.41 next
week, which would be the lowest since Dec. 1. []
Analysts remain cautious that prices could weaken and become
more volatile as operations wind down for the year end and
trading volumes begin to thin.
Investors will remain on alert over the weekend for any move
from China to raise interest rates which could cool demand,
added Meir.
(Additional reporting by Randy Fabi in Singapore; editing by
James Jukwey)
