* Dollar index <.DXY> hits 10-week high as euro slumps
* Technicals: prices may retrace to $84.50 []
* Coming Up: U.S. API oil inventory report; 2130 GMT
(Updates prices, detail, comment)
By Christopher Johnson
LONDON, Nov 30 (Reuters) - Oil fell towards $85 on Tuesday
as the dollar hit a 10-week high on concerns about Europe's debt
crisis and on worries over demand in China as it looks to brake
energy demand growth and cool inflation.
Traders also looked for more evidence that U.S. oil
inventories would drain with a surge in demand for heating as
wintry weather swept across Europe and the United States.
Oil prices climbed 2.4 percent on Monday, led by futures for
heating oil and gas oil, as cold weather raised expectations of
higher fuel consumption on both sides of the Atlantic.
U.S. crude for January <CLc1> slipped 50 cents to $85.23 a
barrel by 1458 GMT after rising $1.97 on Monday, when it briefly
touched $85.90, the highest price since Nov. 12. Prices reached
a 25-month high of $88.63 on Nov. 11.
ICE Brent <LCOc1> lost 30 cents to $87.04 after rising more
than 2 percent on Monday.
The dollar index against a basket of currencies reached its
highest since mid-September as the euro <EUR=> tumbled on
continuing fears that Ireland's bailout might not help keep
Europe's debt woes contained. []
In euro terms, Brent reached its highest level for almost
seven months on Tuesday, climbing above 67 euros per barrel.
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For a graphic of Brent in euros and the dollar index, click:
http://link.reuters.com/bef77q
For graphic of the components of the CRB commodity index:
http://graphics.thomsonreuters.com/F/08/CRB291110.gif
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Robert Montefusco at Sucden financial said the weakness of
the euro was putting increased pressure on oil.
"That puts pressure on the fundamentals," Montefusco said.
"Fear of contagion with not only Portugal and Spain, but now
with France and Belgium in focus as well."
"The longer the euro stays below 1.30 the harder it will be
for oil to recover," he added.
Oil and other commodities often move inversely to the
dollar, partly because they are priced in the U.S. currency. The
dollar is also seen as a safe haven while commodities are
sometimes viewed as riskier by investors.
U.S. INVENTORIES
An industry report on inventories from the American
Petroleum Institutes (API) is due on Tuesday at 2130 GMT,
followed by government statistics from the Energy Information
Administration on Wednesday.
U.S. crude oil inventories probably fell by 400,000 barrels
last week as imports dipped, a Reuters poll of analysts
suggested, but analysts were divided with an equal number of
them predicting a decline and an increase. []
Cold temperatures in the Northeast United States and
northwestern Europe provided a boost to London gas oil <LGOc1>
and U.S. heating oil <HOc1> distillate futures on Monday as the
U.S. December refined products contracts neared their Tuesday
expiration. []
China's key stock index fell 1.6 percent to close at a
seven-week low on Tuesday, with a shortfall of cash in the
domestic money market creating a liquidity squeeze in the stock
market. [] []
Analysts said the drying up of cash in the market was
prompting speculative retail investors, already on edge about
whether the central bank would introduce further tightening
measures, to sell heavily weighted financials and commodity
issues.
Factories in Japan and South Korea, Asia's second- and
fourth-largest oil users, cut output in October, adding to
evidence of a slowdown and boding ill for the rest of the world
that has relied on the region to keep the global economy
humming. []
(Additional reporting by Jonathan Gleave in London and
Alejandro Barbajosa in Singapore; editing by William Hardy)
