Oil reversed early losses on Wednesday to rise back toward $70 a barrel, as data showing oil demand is recovering in the United States outweighed doubts about the strength of the global economy.

By 1425 GMT (10:25 a.m. EDT), U.S. crude for September delivery was up 26 cents at $69.45 a barrel.

London Brent crude for October was down 1 cent at $72.34.

Prices had fallen earlier on Wednesday, hitting a low of $68.05 after a near 5 percent slump in Chinese shares sent doubts rippling through global markets about the strength of the world economic recovery.

But a report from the American Petroleum Institute (API) showing U.S. oil demand is now down 3 percent year-on-year, compared with an average decline of around 6 percent in the first half of 2009, saw prices reverse higher.

I think these (demand) changes are reflective of an improving economy, but one must be cautious because these changes are versus year ago weak numbers, said API chief economist John Felmy.

A drop in the U.S. dollar against the euro also boosted prices, as dollar-denominated commodities like oil become cheaper for holders of other currencies.

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Price movements were limited as traders awaited the release of weekly U.S. fuels stocks data from the Department of Energy, due at 1430 GMT (10:30 a.m. EDT). Less comprehensive data from the API on Tuesday showed a surprise drop in U.S. crude stocks.

(Additional reporting Emma Farge in London and by Jennifer Tan in Singapore; Editing by Peter Blackburn)