Oil rose by adjusting the biggest drop in nearly two weeks

Oil rose by adjusting the biggest drop in nearly two weeks on signs of accelerating growth in China and declining fuel inventories in the U.S.

Futures gained as much as 1.7 percent after a report showed China manufacturing grew at its fastest pace in seven months in November. data from the U.S. government today may show oil inventories fell 1.15 million barrels last week. Crude advanced as the dollar fell for the first time in four days, increasing the attractiveness of commodities to investors.

"The confidence of oil is getting better, with U.S. data rather support the demand side and the Chinese figures stronger than expected," said Hannes Loacker, analyst at Raiffeisen International Bank AG in Vienna. "But with the possibility of raising rates further in China, prices are likely to be capped at $ 90 this year."

The January contract rose to $ 1.42 to $ 85.53 a barrel on the New York Mercantile Exchange and was at $ 85.49 a barrel at 12:30 pm London time. Brent crude oil for January settlement rose to $ 1.49, or 1.7 percent, to $ 87.41 a barrel on the ICE Futures Europe exchange in London.

China Purchasing Managers' Index rose to 55.2 from 54.7 in October, according to the federation of logistics in the country today. That was more than the 54.8 median estimate of 14 economists surveyed by us.

European Debt

Oil prices fell 1.9 percent yesterday concern mounted that Europe's debt problems are spreading to countries like Spain, Portugal and Italy. It was the biggest daily drop since Nov. 17. The European Union approved a rescue package of 85 billion euros ($ 111 million) for Ireland from 28 November.

The crisis has pushed down the euro against the dollar, which limits the appeal of commodities priced in U.S. currency. The euro was at $ 1.3102 today, 0.9 percent, as the dollar fell against all but one of his 16 fellow seniors.

"China's economy will continue to grow as much as possible, and in five years their oil consumption will be much greater," said Tetsu Emori, fund manager of raw materials Astmax Ltd. in Tokyo. "The market is more focused on the dollar and the euro and worried about credit problems in Europe."

An Energy Department report today may show U.S. crude and distillate fuel stocks fell last week. Oil top of its third monthly increase in November, rising 3.3 percent. Prices have risen 6.6 percent this year.

U.S. Inventories of distillates, which include heating oil and diesel, fell 1.1 million barrels. The American Petroleum Institute funded by the industry yesterday said they were up 224,000 barrels.

Crude supplies fell 1.15 million barrels, according to the median of 16 responses in the survey. The API said yesterday fell 1.14 million barrels.

The API contains holdings information voluntarily by operators of refineries, bulk terminals and pipelines. The government requires that reports be submitted to the Department of Energy for its weekly report.