Oil rises towards $78 on weaker dollar, firm equities

Oil rose towards $78 a barrel on Wednesday, supported by a weaker dollar and gains in stock markets on renewed investor risk appetite as concerns about a euro zone debt crisis subsided.

U.S. crude for March delivery rose 43 cents to $77.44 a barrel at 1045 GMT, after closing 3.9 percent higher on Tuesday, the highest percentage gain since a 5.8 percent rise on Sept. 30.

London Brent crude for April climbed 39 cents to $76.07 a barrel.

The euro held near a one-week high against the dollar on a return of risk appetite as global share markets and commodity prices extended gains, although traders were prepared to dump risky assets should more news about Greece's debt woes emerge.

"It is very clear that the fundamentals are not driving this market, but more the bigger economic exchange rate story," said analyst David Wech at JBC Energy in Vienna.

Weakness in the U.S. dollar typically supports oil prices by encouraging investor interest in dollar-denominated commodities.

Crude inventories in the United States were expected to have risen by 1.9 million barrels in the week ended Feb. 12, as imports that had been delayed by weather along the Gulf Coast came ashore, an initial Reuters poll found.

Distillate stocks, which include heating oil and diesel, fell 1.6 million barrels, with demand for heating fuel seen higher after two heavy snowstorms hit the U.S. East Coast, while gasoline supplies rose 1.6 million barrels, the poll showed.

The report from industry group American Petroleum Institute (API) will be released at 2130 GMT on Wednesday — delayed one day due to a holiday — while the Energy Information Administration's (EIA) data is due at 1600 GMT on Thursday.

Tensions between the U.S. and Iran may continue to support prices. President Mahmoud Ahmadinejad said any country that tried to impose new sanctions on Iran would regret its actions, as the U.S. and Russia voiced concerns about Tehran's nuclear programme.