Oil in muted rebound

SINGAPORE (Reuters) -- Oil prices rebounded half a dollar Friday, lifted by a late Wall Street rally and news of a fire at a big Gulf Coast refinery, a day after slumping 3 percent when rekindled credit fears slammed financial markets.

U.S. crude rose rose 57 cents to $71.57 a barrel by 0149 GMT, having shed $2.33 a day ago and fallen as low as $70.10 as investors and speculators, some fearing slower global growth, liquidated energy contracts to offset losses elsewhere.

Some said the heavy selling that has knocked oil back from its August 1 record high of $78.77 could continue, although losses could be checked if Hurricane Dean heads toward the Gulf.

"We still believe that further liquidation could cause WTI prices to drop to $67 or even lower given the large remaining net speculative length in energy," Goldman Sachs said in a report.

But losses were staunched on Friday after news that a fire had forced Chevron to shut one of two crude units at its 325,000 barrels per day refinery in Pascagoula, Mississippi, on Thursday. It was still burning Thursday evening.

A spokesman said a "large portion" of the plant was still operating, but the outage triggered a nearly 2 percent gain in U.S. gasoline futures as traders fear it could add strain to fuel supplies at the end of the summer driving season.

Oil also drew support from a huge end-of-day rally on Wall Street that helped the Dow industrials erase nearly 300 points of losses in the final 45 minutes of trade, as investors bought up financial stocks after weeks of pummeling.

In Asia, stock markets mostly stabilized after a key regional index plunged by 6 percent on Thursday.

Oil's Thursday sell-off came as investors scrambled for safe-haven holdings, with stock markets around the world falling again on fears that a tightening of credit in the U.S. subprime housing sector will spread throughout the economy.

The selling struck across the commodities complex, with the Reuters/Jefferies CRB Index falling 3.4 percent to a six-month low, with copper hit particularly hard.

Prices were also pressured after Tropical Depression Erin crossed Texas without damaging the oil industry there and as the U.S. National Hurricane Center forecast Hurricane Dean would plow into Mexico's Yucatan peninsula in about five days.

Trader continue to monitor Hurricane Dean, which forecasters said could strengthen into a Category 4 storm over the next few days, to see if watching weather models show it entering the Gulf of Mexico, which pumps a third of U.S. oil output.

Many analysts fear the credit squeeze that started in the U.S. subprime loan market could have a knock-on effect on the wider economy and ultimately on oil demand.

Economists now say that the drying up of mortgage credit will worsen the housing market slump, cutting deeper into U.S. growth than estimated just weeks ago, although analysts said the Asian economies driving oil demand remained strong. E-mail to a friend

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