Oil prices steadied near $79 a barrel on Tuesday as the market weighed gains in the dollar against strong U.S. consumer confidence data and colder weather in top consumer the United States.

U.S. consumer confidence improved more than expected in December, hitting a three-month high, as job market pessimism eased and consumers' expectations reached a two-year high, supporting U.S. stocks and crude in early trade.

U.S. crude for February delivery rose 11 cents to $78.88 a barrel at 2:11 p.m. EST, after gains in the dollar sent crude off earlier highs of $79.39 a barrel. in London, Brent crude for February traded up 39 cents at $77.71 a barrel.

The dollar has rallied, taking some of the wind out (of oil's early gains), said Peter Beutel, president of Cameron Hanover in New Canaan, Connecticut.

The U.S. dollar climbed against the euro and yen as holiday-thinned trading exacerbated price moves.

Oil markets have looked to the wider economy this year for signs of strength that could bolster flagging fuel demand. Worries about the economy have at times prompted investors to pull cash from commodities.

U.S. home prices were unchanged in October, according to the Standard & Poor's/Case-Shiller indexes, indicating stabilization in the housing sector, though the figures dashed hopes for a sixth straight monthly increase.

Wall Street stocks gained modestly as the consumer confidence data offset the home price data. <.N>

Weekly U.S. gasoline demand data from MasterCard SpendingPulse showed consumption down 3.3 percent in the week to December 25, compared with the previous week, but up 1.3 percent against the previous year.

Crude rose on Monday, boosted by colder U.S. weather and tensions between Russian and Ukraine that raised concerns about oil supplies to Europe.

However, Ukrainian state energy firm Naftogaz said on Tuesday Russia had agreed to a 30 percent increase in the transit tariff for the oil it transports to Europe in a deal that calmed fears of supply cuts.

Temperatures in the U.S. Northeast -- the world's largest heating oil market -- were expected to average below normal through Friday, private forecaster DTN Meteorlogix said.

An updated Reuters poll of analysts showed U.S. crude inventories likely fell by 2 million barrels last week as refiners drew down stocks for year-end tax reasons.

Weekly U.S. inventory data from the American Petroleum Institute was due at 4:30 p.m. EST on Tuesday, while data from the U.S. Energy Information Administration will be released on Wednesday.

(Reporting by Matthew Robinson and Robert Gibbons in New York; Christopher Baldwin in London; Judy Hua in Singapore; Editing by David Gregorio and Walter Bagley)