Oil jumped more than 5 percent to near $67 a barrel on Thursday as economic data sparked fresh optimism that the recession may be bottoming out.
The number of U.S. workers staying on jobless rolls fell to the lowest in three months last week, government data showed, while the four-week moving average for new claims dropped by 8,250, to 559,000 -- the lowest level since late January.
Support also came from data showing euro zone economic sentiment increased in July to its highest level in eight months, helping to lift European equities to their highest close in nearly nine months.
The central bank of the world's No. 2 oil consumer, China, said on Thursday it would keep a loose monetary policy to consolidate its recovery after fears Beijing might move to tighten money supply. That had sent Chinese shares spiraling on Wednesday.
Markets are rebounding with stocks higher, renewed optimism, and a weak dollar. Oil markets were oversold after yesterday's sharp drop and jobless data may have also provided additional support, said Tom Bentz, analyst at BNP Paribas Commodity Futures Inc.
U.S. crude settled up $3.59, or 5.7 percent, at $66.94 a barrel, nearly erasing a 5.8 percent loss posted on Wednesday after U.S. data showed a steep build in the top consumer's crude inventories.
London Brent traded up $3.58 to $70.11 a barrel.
The economic data, along with a string of solid corporate profits, helped lift equities markets while the dollar weakened as optimism whetted investor appetite for risk.
Expectations a rebound in the global economy could bolster slumping fuel demand have helped push crude up from below $33 a barrel in December, with many investors looking to stock markets for early signs of a turnaround.
The recession has battered global fuel consumption and sent crude tumbling from record highs near $150 a barrel struck in July 2008, prompting the Organization of the Petroleum Exporting Countries to agree a series of output cuts aimed at lifting prices.
Kuwait's oil minister said oil prices should rise later this year with the onset of winter heating oil demand in the Northern Hemisphere.
Energy traders have also been keeping a close eye on plans under consideration by the U.S. Commodities Futures Trading Commission to implement position limits for some commodity futures after wide price swings that have raised concern over speculation.
Some critics worry U.S. regulators may impose limits on futures positions, which could push investors away from exchange-based oil trading in contracts such as NYMEX crude.
(Additional reporting by Robert Gibbons and Gene Ramos in New York and Christopher Johnson in London; Editing by Marguerita Choy)