Oil rose over 7 percent on Wednesday after data showed an unexpected drop in U.S. crude stocks and an increase in gasoline demand.

News that No. 2 oil consumer China's manufacturing index climbed for the third straight month also supported prices, dealers said.

U.S. crude oil futures for April delivery rose $3.10 to $44.75 a barrel by 1:31 p.m. EST.

London Brent crude gained $2.34 to $46.04 a barrel.

Overall the (U.S. oil inventory) numbers are very bullish ... again, gasoline remains the one bright spot in the market that can really pull the complex higher, Chris Jarvis of Caprock Risk Management said.

Couple that with the composite of economic news out of China overnight and this is really setting the stage for the energy complex ... to move higher if the equities market can maintain themselves, he added.

Weekly U.S. inventory data showed stocks of crude oil in the world's top consumer declined by 700,000 barrels despite expectations for a 1.2-million-barrel build as U.S. refiners ramped up production by 1.7 percentage points to 83.1 percent of capacity.

Demand for gasoline over the past four weeks was up 2.2 percent from a year ago, the Energy Information Administration said.

Year-over-year gasoline demand has increased in the last several weeks, possibly signaling a recovery of demand for the fuel in the world's top oil consumer, analysts said.

Data from China also gave room for cautious economic optimism as the main gauge of China's manufacturing sector, its purchasing managers' index (PMI), rose in February, implying higher oil demand.

China's PMI index rose for the third month in a row last month as factories restocked in anticipation of an early revival in the economy.

The data helped revive sentiment in equity markets on Wednesday after the U.S. S&P ended below 700 for the first time since October 1996. <.N>

Oil prices have traded in a narrow band around $40 since mid-December, pulled down by falling demand due the global economic downturn but drawing some support from expectations OPEC might cut production again when it meets on March 15.

OPEC planned to lower oil output by 4.2 million barrels per day from production levels in September in an effort to boost dropping prices and a Reuters survey found OPEC members had already met at least 81 percent of their target.

Angola, which currently holds the presidency of the 12-member group, will not advocate for further production cuts when the group meets on March 15 in Vienna, OPEC sources said Wednesday.

Ecuador also said it sees no need for more output cuts at the next meeting, while other OPEC members have yet to make a decision.

Venezuela, Algeria and Libya have raised the possibility of a further reduction, while Iran has said OPEC needed to define a mechanism to support prices, without specifying what form it would take.

Crude prices were also boosted by a statement from the commander-in-chief of the Iranian Revolutionary Guards that missiles from the OPEC nation can reach Israeli nuclear sites, raising concerns of conflict in the Middle East.

(Additional reporting by Eileen Moustakis in New York, Christopher Johnson in London and Jennifer Tan in Singapore; editing by John Picinich)

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