Oil shed early losses and hovered near $71 on Wednesday as the dollar's fall to one-year lows and Asian equities' climb to 2009 highs drew investors back to risky assets on brightening signs of a U.S. economic recovery.

Investors drew strength from data showing strong growth in U.S. retail sales, New York State manufacturing activity and U.S. producers' prices -- factors that outweighed numbers showing a sharp jump in U.S. distillate stocks.

The weaker dollar is the supportive element now, said Toby Hassall, head of research at Commodity Warrants Australia.

NYMEX crude for October delivery was down 3 cents at $70.95 a barrel by 0710 GMT (3:10 a.m. EDT), after settling up $2.07 on Tuesday, while ICE Brent was down 17 cents at $69.69.

Though oil has more than doubled from this year's low of $32.70 hit on January 20, it is trading 52 percent below the record high of more than $147 struck in July 2008. The market this year hit a high of $75 on August 25.

The American Petroleum Institute said in its weekly inventory report after Tuesday's close that crude stocks rose by 631,000 barrels last week, against the forecast in a Reuters poll of analysts for a drawdown of 2.4 million barrels.

The industry group also said distillate stocks, which include heating oil and diesel fuel, jumped by 5.2 million barrels, against a forecast rise of 1.3 million. Traders are now focused on data from the U.S. Energy Information Administration (EIA), which is due later on Wednesday.

Michelle Kwek, an analyst at Informa Global Markets said earlier in the day that prices fell when trading started on Wednesday because the market drew conclusions from the API report.

It is evident from the figures that demand is still lacking. I expect prices to hover between $60 and $70. At this stage, you could say that demand has still not recovered to the extent that would help to sustain prices above $70, Kwek added.

The U.S. currency hit a one-year low against a basket of major currencies as a sell-off gathered steam, with investors moving to riskier assets, pushing up stocks.

In the United States, retail sales rose at the fastest pace in 3- years in August and New York State manufacturing activity hit a near two-year high, data showed, more signs that economic activity was improving.

A separate report showed prices received by U.S. producers rose faster than expected last month, also giving a lift to U.S. stock markets.

Federal Reserve Chairman Ben Bernanke said the worst U.S. recession since the Great Depression had probably ended, but the recovery would be slow and creating new jobs would take time.

The Organization of the Petroleum Exporting Countries said signs of a rebound in the world economy appeared to be gathering but that the recovery would be gradual.

(Editing by Clarence Fernandez)