UPDATE 7-Oil rallies to around $73 on jobs data, dollar

                                
 * U.S. jobless claims fall [ID:nLLAQJE647]
                                
 * Technicals suggest recovery to $74.40 [ID:nSGE67P00T]
                                
 * U.S. crude stocks rise 4.1 mln bbls - EIA [ID:nN25144755]
                                
 * Coming Up: U.S. preliminary Q2 GDP; 1230 GMT on Friday
 
                                
 (Updates prices)
                                
 By Christopher Johnson
                                
 LONDON, Aug 26 (Reuters) - Oil rose for a second day on
Thursday following better-than-expected U.S. unemployment data
and a fall in the dollar as investors moved back into the market
after it recovered from 11-week lows.
                                
 New U.S. claims for unemployment benefits fell more that
expected last week, government data showed on Thursday. Initial
claims for state unemployment benefits fell 31,000 to a
seasonally adjusted 473,000 in the week to Aug. 21.
[ID:nN26152418]
                                
 Gold fell <XAU=> and the dollar erased some losses after the
jobs data while U.S. oil prices added an extra 30 cents to its
earlier gains before slipping back.
                                
 Benchmark U.S. crude futures for October <CLc1> traded at
$72.87, up 35 cents per barrel, by 1320 GMT after reaching a
high of $73.76, up $1.24. 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.
                                
 "The market has been discounting another dip in the U.S.
economy recently and has been oversold," said Eugen Weinberg,
commodity analyst at Commerzbank in Frankfurt. "Today's jobs
data is better than expectations and there is also some
bargain-hunting after the recent price falls."
                                
 The rally was supported by a 0.3 percent fall in the value
of the dollar <.DXY> against a basket of currencies. A weaker
dollar often supports commodities because many of them are
priced in the U.S. currency.
                                
 Equity markets were also stronger. [.N] [.EU] [.HK]
                                
 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:
http://graphics.thomsonreuters.com/gfx1/ABE_20102608123008.jpg
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 
                                
 GLOOMY
                                
 But the supply and demand picture for oil remained negative
and the wider economic picture was also gloomy, leading some
analysts to suggest the rally could be short-lived.
                                
 "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 awaited U.S. second-quarter gross domestic
product due for release on Friday.
                                
 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. [ID:nN25121445]
                                
 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. [EIA/S]
                                
 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 Alison Birrane)