by Maryelle Demongeot

OIL edged down on Tuesday, coming off a more than 3 per cent rise in the previous session after a rally in Wall Street and financial stocks on a US plan to buy up distressed assets to tidy up bank balance sheets.

Improving risk appetite following new details on the US financial rescue plan, which have further weakened the greenback, helped push oil prices to their highest intraday level in 2009 on Monday and sent Japan's Nikkei average to a more than two-month high on Tuesday.

US light crude for May delivery fell 17 cents to US$53.63 a barrel by 0225 GMT, having settled at US$53.80, up US$1.73 on Monday.

London Brent crude was down 22 cents at US$53.25.

'Any upside should be short-lived as commodity markets are once again behaving as a proxy for the global economy,' said Jonathan Kornafel, Asia director of US-based Hudson Capital Energy in Singapore.

'Once traders digest the Treasury's new plan and accept that any inflation/weak dollar danger is months if not a year away, the market will come back off hard,' he added.

A weaker US dollar often sends investors to US dollar-denominated commodities as a hedge against inflation.

The dollar slid back towards the two-month low hit against a basket of major currencies last week when investors seized on the Federal Reserve's decision to buy large amounts of Treasuries as a sign of the ongoing erosion of the world's reserve currency.

The US government on Monday offered a raft of incentives for private investors to help rid banks of up to US$1 trillion in toxic assets that plunged the world economy into crisis.

The toxic asset plan got a vote of confidence from stock investors, with US stocks surging around 7 per cent on Monday, their biggest one-day advance in nearly five months.

But oil fundamentals have yet to show significant improvements, with a preliminary Reuters poll forecasting a 1.1 million barrels rise in US crude oil inventories last week with imports on an upswing.

Gasoline supplies were projected to be down by a moderate 200,000 barrels and distillate supplies, which include heating oil and diesel, were expected to be little changed.

The analysts made their forecasts ahead of weekly inventory reports to be released by industry group American Petroleum Institute on Tuesday at 2030 GMT and the US Energy Information Administration on Wednesday.

Technical analysis shows resistance at US$59.74, a 23.6 per cent Fibonacci retracement of the entire downward movement from the third to the four quarter of 2008.

Oil prices have climbed from under US$33 last December due in part to aggressive supply cuts from OPEC. But prices remain almost US$100 below last summer's peak as the global economic crisis erodes consumption.

'Sentiment is positive as some risk appetite returns. But signals are running ahead of fundamentals,' said French bank Societe Generale in its Oil Drivers report.

The bank's analysts see GDP and demand still weak for the time being while the Organization of the Petroleum Exporting Countries (OPEC) has decided against further supply curbs.