Oil pared losses on Tuesday after an earlier fall to a new 3-1/2-year low below $48 a barrel, weighed down by heavy losses in global stock markets after confirmation that the United States was in recession.

But a rally in European shares and expectations of a bounce on Wall Street helped oil move up from its lows.

U.S. light crude for January delivery was up 3 cents at $49.25 a barrel by 1300 GMT. It earlier touched a new 3-1/2 year low of $47.36, its lowest since May 2005.

Prices had dropped nearly 10 percent on Monday.

London Brent crude was up 5 cents at $48.02 a barrel after touching a low of $46.02, its lowest since February 2005.

“Today’s equity market rebound is preventing oil from going lower,” said Olivier Jakob, of consultancy Petromatrix.

“The equity market has been a main input for oil,” he said. “Because the slowdown in oil demand is linked to the global economy – that’s why the correlation is very strong.”

Oil prices had tumbled on Monday after OPEC decided to wait until later this month to take more supply off the market to try to defend prices.

“OPEC was the key reason for the sell-off at first and then the poor performance on equity markets helped it follow through,” said Rob Laughlin, oil analyst at MF Global in London.

A key economic research body found on Monday that the United States economy had slipped into recession in December 2007.

The Organization of the Petroleum Exporting Countries is ready to cut production by a significant amount when it meets later this month in Algeria to try to shrink rapidly building stocks, OPEC’s secretary-general said on Monday.

Top exporter Saudi Arabia has highlighted $75 a barrel as a “fair price” for oil.

But OPEC’s existing cutbacks of about 2 million barrels per day have so far failed to bolster the price, which has dropped nearly $100 a barrel from a peak of more than $147 in July.

More bearish news could be in store on Wednesday, with U.S. crude oil inventories likely to have risen by 1.8 million barrels last week, a third consecutive weekly build, as imports continued to increase, a preliminary Reuters poll of analysts showed.

By Christopher Johnson
LONDON, Dec 2 (Reuters)