Oil rose back above $70 a barrel on Wednesday as equity markets climbed, but concerns about the strength of demand and a jump in U.S. crude inventories kept gains in check.

U.S. light crude for September delivery rose $1.03 to $70.48 a barrel by 1509 GMT (11:09 a.m. EDT), having fallen for the previous four sessions. U.S. crude hit a near two-week low of $68.84 in early trade on Wednesday, before rebounding strongly.

London Brent crude rose 56 cents to $73.02.

Traders said oil prices continued to track the fortunes of equity markets as they looked for positive signs from the wider economy. Global stock markets were broadly up on Wednesday, but oil fundamentals gave pause for thought.

It's pretty clear that the fundamental picture remains bearish, but it remains to be seen when crude prices will react accordingly, since they have continued to react to (a rise in the) S&P stocks and the weakening dollar, Addison Armstrong, director of market research at Tradition Energy said.

U.S. oil data from the Energy Information Administration showed crude stocks in the world's largest energy consumer rose by 2.5 million barrels last week, against expectations for just a 700,000 barrel build.

Gasoline demand in the U.S. was also steady with last year, when prices were almost twice as high at the pumps, illustrating the impact the recession has had on consumption despite lower prices. More than one in 10 barrels of crude oil end up in the U.S. gasoline pool.

The International Energy Agency (IEA) said global oil demand growth will be lower in 2010 than previously forecast, with little evidence a recovery is underway yet.

The Paris-based agency, adviser to 28 industrialized nations, said global oil demand was now seen recovering by just 1.3 million barrels per day (bpd) in 2010, having fallen by 2.3 million bpd this year as the economic crisis curbed consumption. World oil demand hit a peak of 86.5 million bpd in 2007.

Evidence of a bottoming out of the recession is still a bit patchy. The latest data on industrial production for some of the larger countries remains negative, David Martin, analyst at the IEA, told Reuters.

There is not clear evidence yet we have seen the worst.

FEDERAL RESERVE

Traders will also keep a close eye on the two-day U.S. Federal Reserve meeting that ends later on Wednesday with a statement expected at about 1815 GMT.

The Fed and their statement will be the biggest factor that will drive the future of oil prices, said Phil Flynn, energy analyst at PFGBest Research.

The statement from the Federal Reserve could influence the direction of the dollar, which tends to have an impact on commodities like oil which are priced in the greenback.

The dollar was lower ahead of the meeting, making oil cheaper for holders of other currencies.

(Additional reporting by the New York Energy Desk and Maryelle Demongeot in Singapore; Editing by Anthony Barker)