AP:

Oil futures rallied again Wednesday, pushing briefly past US$101 a barrel after the United States Federal Reserve lowered its forecast for economic growth this year, convincing energy investors that the central bank will slash interest rates further.

The Fed said damage from the housing slump and problems in the credit markets will slow economic growth to between 1.3 per cent and 2 per cent this year, down from a previous forecast for GDP growth of between 1.8 per cent and 2.5 per cent.

NEW TRADING RECORD

The contract for March delivery of light sweet crude, which was expiring later Wednesday, rose 73 cents to settle at a record US$100.74 on the New York Mercantile Exchange after earlier rising as high as $101.32, a new trading record. On Tuesday, the contract jumped $4.51 a barrel.

Falling rates tend to weaken the dollar, and crude futures offer a hedge against a falling dollar.

April crude oil, which will become the front-month contract yesterday, fell 40 cents to US$99.30 a barrel. In London, April Brent crude fell 68 cents to $97.88 a barrel on the ICE Futures exchange.

In Wednesday's economic reports, the US Labor Department said its Consumer Price Index, a measure of inflation, rose by 0.4 per cent last month, more than economists expected. That jump may mean the Federal Reserve will limit the size of future interest rate cuts.

The Commerce Department, meanwhile, said construction of new homes and apartments rose by 0.8 per cent in January, but that applications for building permits, an indicator of future activity, fell by 3.0 per cent.

LATEST SIGNS

The latest signs that the economy is cooling come a week after the Energy Department, the Organisa-tion of Petroleum Exporting Coun-tries and the International Energy Agency all lowered their oil demand growth forecasts for this year.

Many analysts blame oil's recent price spike on speculative investment flows into the oil market driven by a falling dollar. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

Falling interest rates tend to weaken the dollar; the prospect that Wednesday's inflation number may limit future Fed rate cuts boosted the dollar Wednesday, giving energy investors another reason to sell oil futures. There are also concerns that high oil prices - and the higher gasolene and heating oil prices they spawn - are sewing the seeds of their own destruction by contributing to the economic slowdown.

"The price gains raise questions about their sustainability in the face of eroding fundamental strength," said Antoine Halff, an analyst a Newedge USA LLC in a research note.