(Reuters) - Brent futures edged up towards $109 per barrel on Thursday as a steep drop in the previous session brought in bargain hunters, while investors awaited further cues from a European Central Bank policy meeting and critical U.S. jobs data.
Oil markets also appeared to win some stability from the equity markets, where Japanese stocks inched up and the broader market indicator held steady.
On Wednesday, Brent had dropped 3 percent and U.S. crude 4 percent as fears of a delayed recovery in China and a recession in the euro zone muddied the outlook for oil demand.
"The markets have reacted primarily to what appears to be a steady stream of weak economic data out of China and the euro zone as well; the fundamentals point to near-term weakness," said Victor Shum, a senior partner at oil consultancy IHS Purvin & Gertz in Singapore.
"In the immediate term, some investors could see a buying opportunity after the sharp drop yesterday and we could see a spillover from the equities markets which are up," he added.
Front-month Brent futures rose 40 cents to $108.57 per barrel at 0635 GMT. Brent fell to $107.67 on Wednesday, the lowest since September 20.
NYMEX crude for November delivery rose 23 cents to $88.37 a barrel, after dropping to its lowest since August 3 in the previous session.
Even as economic worries in Europe and China kept investors jittery, data from the U.S. offered a ray of hope, with private employers adding more jobs than expected in September and new orders helping a pick-up in the service sector.
U.S. JOBS DATA EYED
This data precedes the more widely followed jobs numbers from the U.S. Labor department on Friday, which are expected to show a slight improvement from the previous month.
Employers are expected to have added 113,000 jobs to their payrolls, an increase from 96,000 in August, with the unemployment rate edging up by a tenth of a percentage point to 8.2 percent, according to a Reuters survey.
Also supporting U.S. crude, inventory levels unexpectedly dropped last week despite an increase in imports. Crude stocks fell by 482,000 barrels, compared with expectations for a 1.5 million-barrel increase.
In Europe, policymakers at the ECB may hold interest rates steady at Thursday's meeting to allow time for new details on the health of the euro zone economy and for Spain to ask for aid.
Economic worries remained at the forefront of all asset markets this week as a series of surveys across the world pointed to increasing weakness, casting doubts over the still-fragile recovery.
Wednesday's data showed that the service sector in the euro zone had declined even further, diminishing chances that the region will see growth before next year.
Even China's normally robust services sector weakened to a two-year low in September, as the impact of the slowdown in the export-focused nation's biggest customers hit home.
The service sector data came on the heels of manufacturing numbers earlier in the week, which showed factory activity in the euro zone fell to its lowest since early 2009, while China showed signs of having lost its growth momentum.
Besides growth concerns, investors are also fretting about the deepening euro zone crisis. Greece is struggling to strike a deal with its lenders on disputed austerity cuts, while Spain is expected to be the next nation to request a bailout.
Over the next five weeks, "oil prices might be weaker, dominated by uncertainties and concerns over Spain, further concerns on whether the Chinese economy is stabilizing or sliding, and by a general sense of economic inertia", Barclays analysts said in a report.
After five weeks, oil markets will be driven by the outcome of the U.S. presidential election and geo-political concerns, they added.
Geo-political concerns include the still simmering dispute in the Middle East over a nuclear program in Iran that triggered tough sanctions from the United States and the European Union and plunged the Iranian rial to a record low this week.
Adding to the tensions is social unrest in Iran over the weakening currency, the proverbial last straw for its citizens who are already reeling under the impact of the sanctions.
Elsewhere, Turkey's military hit targets inside Syria after mortar bomb fired from Syrian territory killed five Turkish civilians, marking the most serious cross-border escalation of the 18-month uprising in Syria.
"Competing influences of weakening global growth and geo-political risk/supply disruptions will continue pulling prices in either direction," analysts at National Australia Bank said in a report.
(Editing by Himani Sarkar)
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