Oil rose towards $110 a barrel on Wednesday, extending gains after robust U.S. data brightened the outlook for demand in the world's biggest oil consumer.

Orders for U.S.-made durable goods surged last month and home prices posted their biggest year-on-year gain in six-and-a-half years in January, data showed on Tuesday, suggesting the U.S. economy had regained momentum early in the first quarter.

The rise was checked, however, by festering worries over the euro zone.

Brent crude rose 16 cents to $109.52 a barrel by 1030 GMT, after rising for a third straight day in the previous session. U.S. oil fell 54 cents to $95.80 after ending $1.53 higher.

"We look for strong U.S. economic numbers to continue through the rest of this week, with the associated equity gains keeping (U.S. crude) WTI supported at around the $95-$96 region," Jefferies Bache analysts said.

"However, we do feel that crude and product stock categories could offer some bearish surprises, especially within crude."

Reflecting investor sentiment on the economies of the two regions, Brent's premium to U.S. crude remained near the $12.52 a barrel hit in the previous session, the smallest in eight months.

The spread has narrowed sharply from $23.45 in February. The improving U.S. economy and increased pipeline flows from the Midwest have supported the U.S. benchmark oil contract.

Meanwhile, Brent has been pressured by increased supplies from the North Sea, while the strict conditions on a rescue plan for Cyprus underlined concerns about Europe's financial stability.


The upbeat outlook for the United States was tarnished somewhat by other data on Tuesday showing a sharp drop in consumer confidence as Americans worried about the impact of tighter fiscal policy, particularly $85 billion in government budget cuts known as the "sequester".

Elsewhere, data from industry group the American Petroleum Institute late on Tuesday showed U.S. crude oil stocks rose 3.7 million barrels last week, much higher than forecast in a Reuters survey of analysts. Inventories of gasoline and diesel both fell more than expected.

The more closely-watched government data from the U.S. Energy Information Administration (EIA) is set for release at 10:30 a.m. EDT (1430 GMT) on Wednesday. (Additional reporting by Jessica Jaganathan in Singapore; editing by Jane Baird)