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By Felicia Loo
SINGAPORE (Reuters) - Oil rebounded toward $74 a barrel on Wednesday, as buying stepped up in anticipation of a drop in U.S. crude and gasoline supplies, halting a slide caused by hopes for a Middle East ceasefire.
U.S. light sweet crude for August delivery rose 41 cents to $73.95 a barrel by 0709 GMT, paring a loss of $1.76 a day ago but well below the record of $78.40 last Friday. London Brent crude rose 61 cents to $74.97.
Oil prices sank on Tuesday in tandem with gold, silver and copper as fears over the risk of expanding Middle East violence eased, after Secretary of State Condoleezza Rice said the United States believed there should be a ceasefire between Israel and Hizbollah as soon as possible, "when conditions are conducive."
"There have been no problems with supplies (from the Middle East) and traders are covering their short positions before the U.S. data," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.
A Reuters survey of analysts showed that U.S. crude oil stocks were expected to have fallen by half a million barrels last week after a big decline the previous week due to high refinery utilization.
Gasoline inventories are forecast to have fallen by 700,000 barrels, underpinned by robust demand during the peak of the U.S. summer driving season.
Prices also drew support from China, which posted accelerated second-quarter growth and whose refineries processed a record volume of crude in June, implying a third month of double-digit growth in apparent fuel demand in the world's number two oil user.
The market is also paying attention to Atlantic weather, as the second tropical storm of what is expected to be a busy 2006 hurricane season formed on Tuesday, though it is not expected to become a hurricane nor threaten U.S. Gulf oil and gas facilities.
SMOOTH MIDDLE EAST EXPORTS
Market fears were soothed as Syria, which Israel accused of backing up the Hizbollah militants, continued to export crude though fighting persisted between its neighbors. State firm Sytrol exports around 6 million barrels of crude a month.
Israel continued to strike Lebanon from the air and ground troops made attacks across the border on Wednesday as the death toll mounted in a conflict that has entered its second week with no end in sight.
The U.S. is stepping up efforts to broker a truce between Israel and Hizbollah, triggered when the guerrilla group seized two Israeli soldiers and killed eight on July 12.
Rice said on Tuesday she would travel to the Middle East but did not detail the time frame. Rice will go to the United Nations on Thursday to discuss the Middle East turmoil with Secretary-General Kofi Annan.
But the underlying danger of a regional crisis lingered as the violence might engulf Iran, which is already at loggerheads with the U.S. over the its nuclear enrichment program. Tehran denies supplying weapons to Hizbollah this time though it funded and supplied the militants during the 1980s.