* Technicals suggest recovery to $74.40 []
* Fundamental outlook still bearish, analysts say
* Coming Up: U.S. Initial jobless claims; 1230 GMT
(Updates detail, comment, prices)
By Christopher Johnson
LONDON, Aug 26 (Reuters) - Oil rose for a second day on
Thursday as investors bought back into the market after it hit
11-week lows, but analysts said the fundamental outlook was
still bearish with ample stocks to cover any rebound in demand.
The rally was supported by a 0.5 percent fall in the value
of the dollar <.DXY> against a basket of currencies and some
technical signs that the market was oversold. A weaker dollar
often supports commodities because many of them are priced in
the U.S. currency.
Equity markets were also stronger in Europe [] and Asia
[] [] on Thursday.
But the supply and demand picture for oil remained negative
and the wider economic picture was also gloomy, analysts said.
The benchmark U.S. crude for October <CLc1> was trading at
$73.40, up 88 cents, by 1026 GMT after reaching a high of
$73.63, up $1.11. The contract rose more than 1 percent on
Wednesday after touching $70.76, its lowest since early June.
Oil has dropped about $10 from a peak of almost $83 on Aug. 4.
ICE Brent <LCOc1> climbed $1.07 to $74.55.
Front-month U.S. crude futures' 14-day relative strength
index (RSI) fell to just 30 on Tuesday, a technical pointer to
oversold conditions, but has since bounced to around 40, Reuters
data show, partly on profit-taking from short positions.
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For a graphic of the 14-day RSI for U.S. crude, click:
http://graphics.thomsonreuters.com/gfx1/ABE_20102608123008.jpg
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"This has all the hallmarks of an upside correction or
retracement in an otherwise falling market," brokers at PVM Oil
Associates in London said.
Financial markets will focus on U.S. jobless claims due out
later on Thursday and U.S. second-quarter gross domestic product
due for release on Friday.
Edward Meir, senior commodity analyst at brokers MF Global,
said the release of weekly U.S. initial jobless claims readings
would grab most market attention.
"We suspect that an in-line or a better-than-expected figure
will likely help Wednesday's modest short-covering rally gain
further traction," Meir said.
New U.S. home sales slumped to their slowest pace on record
in July and orders for costly durable goods were weak, data
showed on Wednesday, heightening fears the economy was at risk
of another downturn. []
A slowdown in the manufacturing sector as indicated by the
weak U.S. durable goods orders report "does not offer much hope
for a bounce in diesel demand heading into September," Harry
Tchilinguirian, strategist at BNP Paribas, said in a note.
"Similarly, labour markets offer scant support to gasoline
demand, and with the end of the driving season around the
corner, seasonal support will begin to fade," he added.
A negative underlying mood also prevailed in the oil market
after government statistics showed total U.S. oil stocks rose to
a fresh all-time high last week, with gains across the board.
The U.S. Energy Information Administration said on Wednesday
U.S. crude inventories rose by a bigger-than-expected 4.11
million barrels last week. []
Gasoline inventories were 2.27 million barrels higher, while
distillate stocks, which include heating oil and diesel,
increased by a larger-than-expected 1.76 million barrels.
In aggregate, commercial crude and product stocks rose to
1.139 billion barrels last week, topping the record weekly high
of 1.13 billion barrels set in the week to Aug. 13.
"The United States is filled-up to the rim on product
stocks," said Olivier Jakob, consultant at Petromatrix in Zug,
Switzerland. "The U.S. stock levels are so high that it is
difficult to price any risk premiums. At current stock levels,
(even) a hurricane will not be difficult to manage."
(Additional reporting by Alejandro Barbajosa in Singapore;
editing by Sue Thomas)
