Oil rebounds but stays below $80 in Asian trade

Oil rebounded in Asian trade today on bargain hunting after prices plunged in reaction to China's surprise hike in interest rates.

New York's main contract, light sweet crude for November delivery rose 41 cents to $79.90 a barrel after dropping by $3.49 yesterday in its biggest one-day fall since early February.

Brent North Sea crude for December delivery was up 20 cents to $81.30 after closing $3.27 lower the day before.

"Some saw the big drop as an opportunity to buy, that's why prices are edging up," said Victor Shum, an analyst with energy consultancy Purvin and Gert in Singapore.

"The correction in oil on Tuesday was the result of the surprise move by China to raise interest rates. The fear is that China will slow down in its economic growth and will reduce the buying of commodities and everything else."

China yesterday raised interest rates for the first time in nearly three years in a move to contain inflation and soaring property prices, rattling global markets.

The People's Bank of China, the country's central bank, increased the one-year yuan lending rate to 5.56% from 5.31%, and the one-year yuan deposit rate to 2.5% from 2.25%.

Shum said oil is expected to recover because the factors that pushed prices above $80 a barrel remain, including an expected general weakness in the  US dollar.

Strikes in France that threatens to paralyse the economy were also helping push oil prices higher, Shum said, adding the mass actions were causing a fuel supply shortage.