Oil falls 3 percent, ending rally as stocks build

SINGAPORE (Reuters) - Oil fell below $43 a barrel on Friday, ending a rally after a larger-than-expected rise in U.S. oil stocks and bearish economic data dampened hopes for a quick U.S. economic stimulus package.

Fresh evidence of the slowing growth that is undermining oil demand also sent Asian stock markets to a 1- month low, fueled by poor corporate results in the technology sector.

U.S. light crude for March delivery fell $1.25, or nearly 3 percent, to $42.42 a barrel by 0800 GMT (3 a.m. EST), ending a rally that lifted crude from a low under $33 a barrel at the start of the week.

London Brent crude edged down 1 cent to $45.38.

"The oil inventory numbers caused some surprise. Wednesday's rally has been put on hold as traders see the excess supply problem not going away until at least the second half of 2009," said Jonathan Kornafel, Asia Director of Hudson Capital Energy, a U.S.-based options house.

U.S. crude inventories rose by 6.1 million barrels last week, well above forecasts for a 1.4 million barrel rise, and leaving them more than 40 million barrels above year-ago levels, government data showed on Thursday.

Distillates stocks also increased by a counter-seasonal 800,000 barrels, while gasoline inventories climbed 6.5 million barrels.

Oil prices have lost more than $100 a barrel over the past six months as a financial crisis brought on a global economic recession, cutting oil demand in the process.

The latest U.S. economic data, also released on Thursday, showed new claims or U.S. jobless benefits exceeded analyst expectations while home-building slid to a record low in December.

Prices had rallied from just above $40 to end 12 cents up on Thursday, as hopes that the White House would move quickly on an economic stimulus package outweighed flagging demand and rising inventories in the world's top consumers.

"The Obama announcement rally yesterday merely reflects the hopes of a possible end to the economic turmoil. But this end will not come about for some time," Kornafel added.

While demand remains weak, eyes have been on OPEC, which has started turning the taps off after agreeing to curb supplies by 4.2 million barrels per day from September levels in the hope of stopping the slide in prices.

OPEC seaborne oil exports, excluding Angola and Ecuador, will drop 250,000 barrels per day (bpd) into early February to a five year low, U.K. consultancy Oil Movements, which tracks future shipments, said on Thursday.

But more is needed to stop the falls.

"Signs of improved OPEC compliance help crude bounce from lows, despite the deepening recession. The recent rally could continue, but is likely unsustainable," said JP Morgan in its monthly energy report.

(Editing by Clarence Fernandez)