* Fed decision prompts fears of policy shift
* Dollar jumps to eight-month high
* Sentiment weak after U.S. crude stock rise
(Changes dateline to London, recasts)
By Emma Farge
LONDON, Feb 19 (Reuters) - Oil prices fell to near $78 a
barrel on Friday after the U.S. Federal Reserve raised its
emergency lending rate, stirring fears that monetary tightening
could slow demand growth in the world's largest oil consumer and
stem investment flows into commodities.
The Fed's move to increase the discount rate rate to 0.75
percent from 0.50 percent also spurred selling in European
shares, gold and other commodities. []
[]
The dollar jumped to an eight-month high against a basket of
currencies and this also weighed on oil prices. [] Oil tends
to fall when the dollar rises as it makes oil more costly for
buyers using other currencies.
U.S. crude for March delivery <CLc1> fell 94 cents to $78.12
a barrel by 1008 GMT after earlier falling by more than $1 to a
low of $77.76 a barrel. ICE Brent crude for April fell 98 cents
to $76.80 a barrel by the same time.
"It's all about the Fed move," said oil trader Rob
Montefusco at Sucden Financial. "Although they say this is not a
move towards further tightening we have still seen a healthy
correction."
Although the benchmark federal funds rate was left unchanged
at near zero, the decision to increase the rate the Fed charges
banks for emergency loans raised concerns that the loose U.S.
monetary policy of 2009 could begin to shift.
Oil prices have firmed gradually from lows of near $30 a
barrel in December 2008 to the current range between $70-$85 a
barrel as low lending rates have encouraged investors to pour
funds into commodities as a hedge against future inflation.
"The Fed's move was clearly a shot across the bow, and will
likely be followed by further steps to sop up the excess
liquidity now permeating through the system," said analyst
Edward Meir at MF Global.
Last Friday, China's central bank said it would lift bank
reserve requirements in an unexpected tightening move that could
slow demand in the world's No. 2 fuel consumer. []
CRUDE INVENTORIES
Data released on Thursday by the Energy Information
Administration (EIA) showed that U.S. crude stocks rose by a
more-than-expected 3.1 million barrels to 334.5 million barrels
in the week ending Feb. 12. []
Gasoline stocks rose 1.7 million barrels, but distillates
fell 2.9 million barrels.
"Fundamentally, we are still weak. Crude is up, gasoline is
up and distillates are down mainly because of the cold weather
on the east coast," said Clarence Chu, analyst at Hudson
Capital.
The number of U.S. workers filing new applications for
unemployment insurance unexpectedly rose last week by 31,000 to
473,000, raising potential hurdles for the economic recovery
[]
But downside was limited by tensions over OPEC member Iran's
nuclear programme. The U.N. nuclear watchdog said on Thursday it
feared Iran may be working now to develop a nuclear-armed
missile, as Washington warned Tehran of "consequences" for
ignoring international demands to stop its atomic programme.
[]
Workers' decision to extend their strike at six French oil
refineries owned by Total <TOTF.PA> may also limit downside in
the market, traders said, adding that $75 a barrel was a key
support cushion for now. []
(Additional reporting by Seng Li Peng in Singapore; Editing
by Keiron Henderson)
