(Reuters) - Brent crude rose past $107 a barrel on Thursday as the dollar weakened, reversing losses earlier in the day over demand worries as the European debt crisis spilled over to France amid a weaker economic outlook for the United States. Brent crude rose as much as $107.40 a barrel, recovering from a low of $105, and traded 40 cents higher at $107.13 by 3:03 a.m. EDT. U.S. oil gained as much as $83.60, reversing from a low of $81.14, to $83.39. The U.S. dollar remained under pressure as investors were reluctant to hold it after the Federal Reserve pledged to keep interest rates near zero two year. Earlier in the day, oil fell as rumors of an impending downgrade of France's credit rating and the financial health of one of its key banks rattled markets. The economic uncertainty overshadowed the steep fall in crude stocks in the world's top consumer that triggered Brent's surge on Wednesday. "The intraday move is a result of the dollar factor," said Serene Lim, an analyst at ANZ in Singapore. "A lot will depend on how Europe reacts to the debt crisis. The slide in crude stocks and the probability of tropical storms in the U.S. are two fundamental factors supporting the market." Prices are expected to be on a rising trend of $100 to $130 a barrel over the next 12 months as the current risk-off trade subsides, even with potentially slower economic recovery in OECD countries, Barclays Capital said in a report. "Although the sovereign crisis and associated risk-off trade have hit energy markets, we do not see sharply weaker energy fundamentals," the report said. U.S. oil had slid 8.7 percent in the first two days of the week, on top of a fall of nearly 9 percent last week as rating agency Standard & Poor's cut the top-tier credit rating of the United States and on fears the world's biggest economy could be sliding back into a recession, hurting oil consumption. "It all appears to be about confidence," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney. "Each bit of negative news erodes confidence and that erodes demand." Brent is expected to retrace to $101.21 per barrel, as it could have completed a minor rebound, while U.S. oil is neutral in a range of $80 to $83.13, an escape from which would be needed to trigger a directional move, according to Reuters technical analyst Wang Tao. CRUDE STOCKS DECLINE U.S. crude stocks declined 5.23 million barrels to 349.75 million barrels in the week to August 5 as imports fell slightly and refinery utilization increased, according to the U.S. Energy Information Administration. Analysts polled by Reuters had projected a 1.5 million barrel build on average. The drawdown came after companies operating in the Gulf of Mexico shut production briefly due to the threat of Tropical Storm Don. "We want to see a trend," Barratt said. "One week's data does not represent a trend on oil demand in the United States." Asian stocks fell between one and two percent, extending Wall Street's drop overnight. The benchmark MSCI Asia Pacific ex-Japan stocks index fell 1.2 percent, with commodity-related stocks hit hardest. The euro fell to fresh five-month lows against the yen in Asia on Thursday and looked set to stay under pressure as investors scramble for cover in traditional safe havens including gold and U.S. Treasuries.

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