Oil rises

LONDON, England (Reuters) -- Oil rose Friday, as European stock markets clawed back some of the previous day's losses and as Hurricane Dean strengthened on a course that could take it towards rigs and refineries in the Gulf of Mexico.

U.S. crude was up 37 cents at $71.37 a barrel at 0850 GMT. It had fallen $2.33 drop on Thursday when investors sold energy to offset losses elsewhere or out of fear that a squeeze on credit will slow global economic growth.

London Brent crude was up 33 cents at $70.10.

"We still believe that further liquidation could cause U.S. WTI prices to drop to $67, or even lower, given the large remaining net speculative length in energy," Goldman Sachs said in a report.

Markets are being battered by fears of financial instability following troubles with risky U.S. mortgages and a squeeze on credit that has prompted central banks to push money into the financial system.

Economists say the drying up of mortgage credit will worsen the U.S. housing market slump, cutting deeper into U.S. growth than estimated just weeks ago, although analysts said the Asian economies driving oil demand remained strong.

Thursday's selling struck across the commodities complex, with the Reuters/Jefferies CRB Index falling 3.4 percent to a six-month low.

Traders continue to monitor Hurricane Dean, which forecasters said could strengthen into a Category 4 storm over the next few days.

The latest computer models show the storm crossing the tip of the Yucatan peninsula, then heading into the Gulf of Mexico. The region pumps a third of U.S. oil output. E-mail to a friend

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