TOKYO, July 18 (Reuters) - Japan's Nikkei share average may
hit fresh two-month highs on Thursday, after Federal Reserve
Chairman Ben Bernanke signalled he was flexible on when the
central bank would begin winding down its stimulus.
His comments helped Wall Street make modest gains and
weakened the yen.
" The Nikkei is expected to rise but it is highly likely that
it will struggle to post strong gains as I expect Intel's weak
full-year outlook will cap the upside, particularly in related
sectors," said Toshiyuki Kanayama, senior market analyst at
Monex Inc.
Market players said the Nikkei was likely to trade
between 14,500 to 14,700 on Thursday. Nikkei futures in Chicago closed at 14,670 on Wednesday, up 0.5 percent from the
close in Osaka.
The world's biggest chipmaker Intel Corp cut its
annual revenue forecast and said it is scaling back capital
spending as it adjusts to a painful contraction of personal
computer sales and economic weakness in China.
The Nikkei has fallen 8.3 percent from this year's peak of
15,942.60, but is still up 40.6 percent this year.

& gt Wall St gains after Bernanke cites flexible policy
& gt Dollar rebounds from 3-week low after Bernanke remarks
& gt U.S. yields fall as Bernanke curbs bond-buying worries
& gt Gold falls, Bernanke sees Fed tapering later this year
& gt Oil rises as U.S. inventories drop again, gasoline off
STOCKS TO WATCH
-SOFTBANK CORP
SoftBank Corp will team up with a U.S. fuel cell developer
to provide the off-grid power source to corporate clients in
Japan, the Nikkei business daily reported, citing company
sources.
-TDK CORP
TDK is expected to report a nearly 50 percent year-on-year
plunge in operating profit for the three months ended June 30,
hurt by poor sales of magnetic heads used in hard-disk drives,
the Nikkei newspaper said.

* Yahoo's stock jumps to highest intraday level since May 2008

  * Bank of America shares climb after earnings

  * American Express shares extend drop after the bell on results

  * Intel and eBay shares slip, but IBM up in after-hours trading

  * Dow up 0.1 pct, S& P 500 up 0.3 pct, Nasdaq up 0.3 pct

  By Caroline Valetkevitch

  NEW YORK, July 17 (Reuters) - U.S. stocks ended modestly higher on Wednesday after Federal Reserve Chairman Ben Bernanke said the timeline for winding down the U.S. central bank's stimulus program was not set in stone.

  Shares of Bank of America and Yahoo rose after the companies reported quarterly results. Both ranked among the names giving the biggest boost to the S& P 500.

  The three major U.S. stock indexes bounced back from Tuesday's lower close, which broke the S& P 500's eight-day string of gains.

  Bernanke said the U.S. central bank still expects to start scaling back its massive bond-buying program later this year, but he said the timeline depended on the economic outlook. He made the comments on Wednesday before the House Financial Services Committee as part of his twice-yearly report to Congress on monetary policy. On Thursday, he will appear before the Senate Banking Committee.

  " He's still being quite vague in describing exactly what to expect next, and I think that serves his purposes. He's trying to minimize the impact of policy change on the markets," said Lawrence Creatura, portfolio manager at Federated Investors in Rochester, New York.

  Bernanke's comments on May 22 triggered a drop of nearly 6 percent in the S& P 500 in the month that followed. But remarks from Bernanke and other Fed officials since then have calmed the market and erased those declines. The S& P 500 is just several points away from the all-time intraday high of 1,687.18 it reached on May 22. For the year, the S& P 500 is up 17.9 percent.

  Yahoo shares shot up 10.3 percent to close at $29.66. Earlier, Yahoo hit an intraday high at $29.73, its highest level since May 2008. Instead of Yahoo's bottom-line results, investors focused more on news of its stake in the fast-growing Chinese e-commerce firm Alibaba and its product development efforts.

  The Dow Jones industrial average rose 18.67 points, or 0.12 percent, to end at 15,470.52. The Standard & Poor's 500 Index gained 4.65 points, or 0.28 percent, to finish at 1,680.91. The Nasdaq Composite Index advanced 11.50 points, or 0.32 percent, to close at 3,610.00.

  Bank of America shares gained 2.8 percent to $14.31, while BNY Mellon Corp shares rose 1.9 percent at $30.92. Both led the financial sector higher after the banks reported stronger-than-expected quarterly earnings. The S& P financial sector index advanced 0.5 percent.

  " One reason investors might be encouraged by earnings is that management teams have done a great job of setting expectations, and right now, the bar is set at ankle height," Creatura said. " So it should be reasonably easy for companies to beat expectations this quarter, and that could be a positive catalyst for markets."

  Analysts expect S& P 500 companies' second-quarter earnings to have grown 3.3 percent from a year earlier, with revenue up 1.2 percent, Thomson Reuters data showed.

  On the flip side, shares of American Express fell 1.9 percent to $76.80 after the European Commission said it would propose limits on fees that banks can charge to process debit-card and credit-card transactions. During the regular session, American Express was the Dow's biggest percentage decliner.

  After the bell, American Express shares slid 1 percent to $76 after the company reported results.

  In other trading after the bell, shares of Intel fell 3.3 percent to $23.35 after the world's biggest chipmaker cut its full-year revenue forecast and said it is scaling back capital spending.

  Shares of eBay dropped 6.2 percent to $53.80 in extended-hours trading after the e-commerce company reported solid second-quarter results, but warned of " headwinds" in the second half of the year from Europe and Korea.

  In contrast, shares of IBM rose almost 3 percent in extended-hours trading after IBM raised its full-year earnings forecast and reported second-quarterly earnings that beat estimates. During the regular session, IBM's stock rose 0.4 percent to end at $194.55.

  During the regular session, shares of DuPont jumped 5.3 percent to $57.25 after Trian Fund Management's Nelson Peltz said he has amassed a " big stake" in the chemicals maker. The stock was the Dow's top percentage gainer.

  Part of the day's upbeat tone came from the Federal Reserve's Beige Book, which said the U.S. economy continued to grow at a modest to moderate pace in June and early July, with manufacturing expanding in most areas of the country.

  Volume was roughly 5.7 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, below the average daily closing volume of about 6.4 billion this year. On Monday, volume hit its lowest for any full trading day this year.

  Advancers outpaced decliners on the NYSE by a ratio of nearly 2 to 1 in Wednesday's session. On the Nasdaq, about three stocks rose for every two that fell.

HONG KONG, July 17 (Reuters) - Hong Kong shares eked out gains in weak Wednesday trade, as strength in Chinese coal and cement counters helped offset a 10 percent plunge in China Resources Power.

  The Hang Seng Index ended up 0.3 percent at 21,371.9 points, while the China Enterprises Index of the leading Chinese listings climbed 0.7 percent.

  Several Hong Kong traders linked the fall in CR Power to widespread Chinese media reports citing a Chinese journalist affiliated with the official Xinhua news agency who alleged that some China Resources executives made the company incur hefty losses when it took over a coal mine in 2010, and they were suspected of corruption.

(Updates to close)

  SYDNEY, July 17 (Reuters) - Australian shares slipped 0.1 percent at the end of trade on Wednesday after Wall Street ended lower overnight ahead of testimony by the U.S. Federal Reserve chairman, but a rise in metals prices and a robust production report from BHP Billiton helped pare losses.

  The S& P/ASX 200 index slipped 4.3 points to finish at 4,981.7. The benchmark edged 0.1 percent higher on Tuesday. New Zealand's benchmark NZX 50 index edged 0.1 percent or 2.4 points higher to finish the session at 4,579. (Reporting by Thuy Ong Editing by Ron Popeski)

* Big iron ore miners pushing supply side to weed out rivals

  * Mining record tonnages despite signs of glut

  * BHP, Rio, Vale, Fortescue expansion to continue as long as margins hold up

  * BHP ahead of plans for iron ore expansion

  * Underscores faith in Chinese iron ore demand

  By James Regan

  SYDNEY, July 17 (Reuters) - Record iron ore output from BHP Billiton and other mining giants appears to defy logic, with demand for the steel-making raw material cooling in top customer China and a price-eroding supply glut looming.

  But the sector's heavy guns are digging more for less to tighten their stranglehold on the world's second-biggest commodity market, as competitors struggle.

  In mining parlance, this is known as a " rebalancing" strategy, designed to improve the operating margins of the majors to such an extent that smaller competitors or new projects may be all but squeezed out.

  " The majors want to maximise those economies of scale," said MineLife sector analyst Gavin Wendt. " As long as they keep margins well ahead of a declining iron ore price, they are winning."

  BHP Billiton, Rio Tinto and Fortescue Metals Group, with their iron ore operations in Australia, and Brazil's Vale are leading the charge.

  Seaborne-traded iron ore prices, which have lost 10 percent so far this year, are forecast to hit their lowest in four years by the end of 2013 as these big miners dig deeper and faster.

  At the same time, forecasters are warning slowing industrial activity in China will result in weaker overall demand for ore.

  But Rio Tinto and BHP are among the most efficient iron ore producers in the world. At current prices of around $130 a tonne, each enjoys a margin of around $80 per tonne.

  AHEAD OF SCHEDULE

  BHP on Wednesday said expansion of its iron ore division was running ahead of schedule after posting a robust 9 percent rise in ore output to a record 187 million tonnes in the 12 months to June 30. By December it aims to be operating at a 220-million-tonnes-a-year rate.

  BHP under the former chief executive, Marius Kloppers, stuck to a policy of mining at maximum rates as long as profits held up.

  New BHP Chief Executive Andrew Mackenzie is showing no signs of changing tack.

  It was Kloppers who in 2010 almost single-handedly broke the half-century old annual iron ore price-fixing mechanism and replaced it with spot indexing in order to weed out weaker producers.

  Steel mills across Asia and Europe initially resisted the switch but were eventually forced to accept the new terms.

  Rio Tinto on Tuesday pointed to moves to lift its iron ore production capability by 35 percent to 360 million tonnes in 2015, estimated by analysts to carry a $5 billion price tag.

  The firm has already started port and railway work and is debating whether to dig new mines altogether or simply expand its existing ones.

  Vale, the world's biggest iron ore miner, this month was cleared by Brazil's Environmental Protection Agency to undertake a $19.5 billion expansion of its Carajas iron ore mine, one of the world's richest and most productive.

  Fortescue has awarded contractor Leighton Holdings A$2.8 billion in work to expand its mines in Australia by a further 60 million tonnes per year.

  Such commitment to rapid expansion shows global miners see the risks to rebalancing as manageable.

  Spot iron ore prices this week edged up to two-month highs, backed by Chinese steel mills replenishing inventories, although the pace of restocking may have slowed, suggesting a two-week rally may soon end.

  Indicating how shipments are holding up, iron ore exports to China from Australia's Port Hedland alone, which handles about a fifth of the global trade, were up 43 percent in June from a year ago.

  Other major export terminals, from Australia to South America, are recording record tonnages.

  The Australians count almost solely on China for revenue from iron ore. Vale's ore feeds steel mills in China and also Europe.

  BLEAK FUTURE FOR SOME

  The strategy of all-out expansion portends a bleak future for projects in early stages of development.

  These include the $10 billion South Korean steel group Posco -backed Roy Hill mine in Australia and Sundance Resources Ltd's $4 billion Mbalam project in Cameroon and Republic of Congo.

  A small army of smaller projects peppering Australia's iron ore rich Pilbara and mid western iron belts and the Brazilian interior are also at risk.

  Some big miners are also rethinking their strategy. Glencore Xstrata Plc is halting production of iron ore in Australia next month, citing deteriorating market conditions and ending a two-year experiment to gain a toehold in the sector.

* Dollar stays on the defensive ahead of Bernanke

  * Gasoline stocks up 2.6 mln barrels vs forecast 500,000 barrel draw -API

  * World powers hope to resume Iran talks quickly

  * Coming Up: Fed Chairman Ben Bernanke's testimony 1400 GMT (Updates prices)

  By Manash Goswami

  SINGAPORE, July 17 (Reuters) - Brent futures slipped below $108 a barrel on Wednesday as investors were reluctant to lock in fresh positions, awaiting more clarity from Federal Reserve Chairman Ben Bernanke on the U.S. central bank's plan to roll back its monetary stimulus.

  Markets will focus on the dollar, which gained marginally after falling overnight on worries Bernanke may indicate the Fed will continue its economic stimulus for longer than expected. The overnight slide boosted commodities on Tuesday, but oil was capped by a surprise build in U.S. gasoline stocks.

  Brent crude slipped 37 cents to $107.77 a barrel by 0618 GMT, after sliding to as much as $107.71. The August contract, which ended on Tuesday, settled at $109.40, the highest finish since April 2.

  U.S. oil fell 55 cents to $105.45, extending losses after closing 32 cents down.

  " Traders would be very cautious in taking fresh positions given that they have been burnt on both sides, on the doveish side as well as the hawkish side," said Ben Le Brun, an analyst at OptionsXpress in Sydney, speaking of the U.S. Federal Reserve's stimulus programme.

  Bernanke is set to testify to Congress on Wednesday and Thursday, and may clarify on when the central bank will roll back its $85 billion a month bond-buying programme. His comments last week that accommodative policy would be needed for the foreseeable future surprised investors, who had bet on a scale-back as early as September.

  " He is likely to reaffirm comments made during last week's speech in which he clarified the Fed's position that (interest) rates could stay low for a considerable period following the end of quantitative easing," analysts at ANZ said in a note.

  Oil, particularly the U.S. benchmark, is also under pressure after an industry report showed a build-up in gasoline stocks in the United States at the peak of the driving season.

  STOCKPILES

  Gasoline stocks rose by 2.6 million barrels, compared with analysts' expectations in a Reuters poll for a 500,000 barrel draw, data from industry group the American Petroleum Institute (API) showed. Distillate stockpiles, which include diesel and heating oil, rose by 3.8 million barrels compared with expectations for a 1.9 million barrel gain.

  The builds overshadowed crude inventories that fell for a third straight week, by 2.6 million barrels, higher than expectations for a 2 million barrel decline.

  U.S. crude inventories plunged 20 million barrels over the previous two weeks, the deepest two-week draw on record, Energy Information Administration data showed on July 10.

  Worries of supply disruption from the Middle East eased somewhat on hopes the West would soon resume talks with Iran over its disputed nuclear programme.

  " It is probably too soon to speculate, but any positive move forward would take some of the risk premium off," Le Brun said.

  Investors still remain concerned about disruption from other major exporters such as Libya. Armed protesters stormed the eastern Libyan oil port of Zueitina demanding export operations be halted, a witness said. (Editing by Tom Hogue)

* Escondida annual copper output soars 28 pct to 1.1 mln
tonnes
* US Senate to hold hearing on banks owning commodities
storage
* China says will support imports, exports
* Coming Up Fed Chairman testifies at 1400 GMT

(Adds comment, detail, updates prices)
By Melanie Burton
SINGAPORE, July 17 (Reuters) - London copper edged towards a
one-month high on Wednesday, with traders waiting to see whether
Federal Reserve Chairman Ben Bernanke will reiterate later in
the day that U.S. monetary policy is to stay accommodative.
Comments favouring looser U.S. policy for longer triggered a
cross-commodity rally earlier this month, because more liquidity
in the banking system tends to lift the value of hard assets.
But copper should be insulated from any downbeat comments
about the U.S. economic recovery because much of the world's
stockpiles are tied up by loading jams at warehouses and
financing deals that lock metal away as collateral, said
Jonathan Barratt, chief executive of Sydney-based commodity
research firm Barratt's Bulletin.
" For the copper market, a bullish sentiment will be
supportive but any negative news will not hit too hard," he
said, noting that he thought tapering would not be brought
forward because the global economy was not as strong as
expected.
U.S. consumer prices picked up in June and underlying
inflation pressures showed signs of stabilizing, keeping on
course expectations that the Fed will start reducing its bond
purchases this year.
Three-month copper on the London Metal Exchange had
edged up 0.26 percent to $7,016.25 a tonne by 0310 GMT, adding
to gains of more than 1 percent from the previous session.
Copper prices reached the highest in nearly 1 month at
$7,049.25 a tonne on July 11, but have failed to find further
momentum as the seasonally slow summer period gets underway.
The most-traded November copper contract on the Shanghai
Futures Exchange traded at 50,510 yuan ($8,200) a
tonne, up by more than 1 percent.
Adding support to prices, China's commerce ministry said on
Wednesday that it will soon release measures to support exports
and imports, though it did not give details.
Dimming copper's prospects, however, is rising medium term
supply. At BHP Billiton's majority owned Escondida
mine in Chile, the world's single-largest lode, copper output
rose 28 percent to 1.1 million tonnes in the 2013 fiscal year,
production data on Wednesday showed.
Next week, a U.S. Senate committee will hold a hearing on
whether banks should control physical commodities storage, where
metals such as copper have been stuck in queues to exit
warehouses. That may signal that lawmakers are ready to toughen
their stance on the controversial but lucrative business for
Wall Street companies.
PRICES
Base metals prices at 0310 GMT
Metal Last Change Pct Move YTD pct chg
LME Cu 7016.25 18.25 +0.26 -11.51
SHFE CU FUT NOV3 50510 510 +1.02 -12.43
HG COPPER SEP3 3.18 0.00 -0.08 -99.13
LME Alum 1814.00 -1.00 -0.06 -12.41
SHFE AL FUT OCT3 14340 30 +0.21 -6.55
LME Zinc 1888.50 0.50 +0.03 -8.48
SHFE ZN FUT OCT3 14680 -865 -5.56 -5.56
LME Nickel 13755.00 -15.00 -0.11 -19.82
LME Lead 2073.50 -1.50 -0.07 -11.39
SHFE PB FUT 13890.00 15.00 +0.11 -8.92
LME Tin 19455.00 0.00 +0.00 -16.86
LME/Shanghai arb^ ---

Shanghai and COMEX contracts show most active months
^ LME 3-month copper in yuan, including 17 pct VAT, minus SHFE third month
($1 = 6.1350 Chinese yuan)

(Editing by Joseph Radford and Tom Hogue)

* Gold falls after gain of 0.8 percent on Tuesday
* Physical demand eases
* SPDR outflows resume after three days

(Adds quotes from dealer, updates prices)
By A. Ananthalakshmi
SINGAPORE, July 17 (Reuters) - Gold eased on Wednesday but
stayed near a three-week high, as the dollar gained ahead of
keenly awaited congressional testimony by U.S. Federal Reserve
Chairman Ben Bernanke later in the day.
Bullion prices have traded in a tight range over the last
few sessions as investors held back on big bets ahead of the
testimony, which they hope will provide a clear outlook
regarding the Fed's $85-billion monthly bond purchases.
Slowing physical demand also contributed to the market's
cautious undertone.
" The trend is unclear, so gold is just following the
dollar," said Peter Fung, head of dealing at Hong Kong's Wing
Fung Precious Metals.
" We are not sure what to expect from Bernanke as he has made
contrasting comments over the last few weeks. Gold is waiting
for guidance from him," said Fung.
The Fed's bond purchases have boosted market liquidity,
benefiting gold and other commodities. They have also kept the
dollar subdued, driving purchases of commodities by holders of
other currencies.
Spot gold fell 0.3 percent to $1,287.76 an ounce by
0646 GMT. U.S. gold lost about $4 to $1,286.80.
The dollar inched up 0.2 percent on Wednesday, but
was not far from a three-week low.
Gold has swayed between sharp gains and losses in the last
few weeks, following mixed comments from the Fed about the
likely timing of a scale-back in monetary stimulus.
Bernanke said last month the U.S. economy was recovering
strongly enough for the Fed to begin pulling back bond purchases
over the next few months. But following the market panic that
ensued, he said last week that a " highly accommodative policy is
needed for the foreseeable future" .

SLOWING DEMAND
Gold hit a three-week high of $1,298.36 on Thursday but has
struggled to cross the $1,300 level. Physical demand has also
taken a pause as prices have bounced off recent lows.
Buying interest from China has been subdued over the last
few days, as indicated by Shanghai premiums, which have eased to
around $25 per ounce from $36 from last week.
" Demand has quietened down. Though we are still seeing
strong demand for gold kilo bars," said Brian Lan, managing
director of Singapore-based dealer GoldSilver Central Pte Ltd.
Outflows from SPDR Gold Trust, the world's largest
gold-backed exchange-traded fund, resumed after a three-day
pause. Holdings of the fund fell to 937.57 tonnes on Tuesday,
their lowest in four years.

Precious metals prices 0646 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1287.76 -4.23 -0.33 -23.10
Spot Silver 19.83 -0.15 -0.75 -34.51
Spot Platinum 1419.24 -4.26 -0.30 -7.54
Spot Palladium 728.47 -5.03 -0.69 5.27
COMEX GOLD AUG3 1286.80 -3.60 -0.28 -23.21 17277
COMEX SILVER SEP3 19.83 -0.11 -0.55 -34.58 4442
Euro/Dollar 1.3133
Dollar/Yen 99.37

COMEX gold and silver contracts show the most active months

(Editing by Clarence Fernandez)

* RBI to provide repo window for mutual funds

  * 3-day repo window will prove up to $4.2 bln

  * Action taken after RBI raised short-term rates (Adds details on central bank assistance)

  MUMBAI, July 17 (Reuters) - India's central bank said on Wednesday that it would provide asset managers with critical access to special funding as the sector faces a surge in redemption requests.

  Short-term interest rates have surged and shares have slumped after the Reserve Bank of India unveiled measures late on Monday in an attempt to shore up the ailing rupee.

  The temporary, three-day repo borrowing window for mutual funds will make up to 250 billion rupees ($4.23 billion) available to asset management companies at 10.25 percent interest, according to a notification issued on Wednesday.

  Further details will be provided at a later date, the Reserve bank of India (RBI) said.

  " It seems like a pro-active move on part of RBI, which should help settle some nerves. This move would help mutual funds meet their redemptions and this would also help stabilise the yields in the market," said Ganti N. Murthy, head of fixed income at Peerless Fund Management Co. Ltd.

  Fund managers had worried they would face a surge in redemptions from investors in shorter-duration debt funds, such as money market funds, as a direct consequence of the RBI's actions.

  Liquid and money market funds had assets under management of 1.6 trillion rupees ($27.02 billion) as of the end of June. Banks and companies tend to be the biggest investors in liquid and money market funds to manage excess cash.

  " By last evening the situation was so bad that we felt mutual funds could face a payment crisis," said Taurus Mutual Fund chief executive, R.K. Gupta said.

  " This gives us room to manage the outflows."

  The RBI last provided a repo window to asset managers in the wake of the 2008 financial crisis.

  Dealers said one-month certificates of deposit were trading at 10.25 percent, having jumped 275 basis points on Tuesday and so far on Wednesday.

  One-year CDs were trading at 10.1 percent from 9.83 percent after jumping 150 basis point in the previous session. ($1 = 59.2150 Indian rupees) (Reporting by Himank Sharma and Archana Narayanan Additional reporting by Neha Dasgupta and Subhadip Sircar Editing by Rafael Nam & Kim Coghill)

HONG KONG, July 17 (Reuters) - China shares fell for the first time in three days on Wednesday as weakness in the financial sector offset strength in coal and cement counters following favourable operational and sales data.

  The CSI300 of the leading Shanghai and Shenzhen A-shares listings ended down 1.5 percent at 2,282.8 points. The Shanghai Composite Index lost 1 percent. (Reporting by Clement Tan Editing by Kim Coghill and Jacqueline Wong)

TOKYO, July 17 (Reuters) - Japan's Nikkei share average edged up to an eight-week closing high on Wednesday as investors hesitated in taking large positions before key events, including the U.S. Federal Reserve chairman's testimony to a congressional panel later in the day. The benchmark Nikkei rose 0.1 percent to 14,615.04, the highest closing since May 22, while the broader Topix added 0.2 percent to 1,213.24.

* Dollar stays on the defensive ahead of Bernanke's testimony

  * Gasoline stocks up 2.6 mln barrels vs forecast 500,000 barrel draw -API

  * World powers hope to resume Iran talks quickly

  * Coming Up: Fed Chairman Ben Bernanke's testimony 1400 GMT (Adds comments, updates prices)

  By Manash Goswami

  SINGAPORE, July 17 (Reuters) - Brent futures slipped below $108 a barrel on Wednesday as investors were reluctant to lock in fresh positions, awaiting more clarity from Fed Chairman Ben Bernanke on the U.S. central bank's plan to roll back its monetary stimulus.

  Markets will focus on the dollar, which has gained marginally after falling overnight on worries Bernanke may indicate the Fed will continue its economic stimulus for longer than expected. The slide boosted most commodities on Tuesday, but oil was capped by a surprise build in U.S. gasoline stocks.

  Brent crude slipped 17 cents to $107.97 a barrel by 0426 GMT, after sliding to as much as $107.80. The August contract, which ended on Tuesday, settled at $109.40, the highest finish since April 2.

  U.S. oil fell 26 cents to $105.74, extending losses after closing 32 cents down.

  " Traders would be very cautious in taking fresh positions given that they have been burnt on both sides, on the dovish side as well as the hawkish side," said Ben Le Brun, an analyst at OptionsXpress in Sydney, speaking of the U.S. Federal Reserve's stimulus programme.

  Bernanke is set to testify to Congress on Wednesday and Thursday, and may clarify on when the central bank will roll back its $85 billion a month bond-buying programme. His comments last week that accommodative policy would be needed for the foreseeable future surprised investors, who had bet on a scale-back as early as September.

  " He is likely to reaffirm comments made during last week's speech in which he clarified the Fed's position that (interest) rates could stay low for a considerable period following the end of quantitative easing," analysts at ANZ said in a note.

  Oil, particularly the U.S. benchmark, is also under pressure after an industry report showed a build in gasoline stocks in the United States at the peak of the driving season.

  STOCKPILES

  Gasoline stocks rose by 2.6 million barrels, compared with analysts' expectations in a Reuters poll for a 500,000 barrel draw, data from industry group the American Petroleum Institute (API) showed. Distillate stockpiles, which include diesel and heating oil, rose by 3.8 million barrels compared with expectations for a 1.9 million barrel gain.

  The builds overshadowed crude inventories that fell for a third straight week, by 2.6 million barrels, higher than expectations for a 2 million barrel decline.

  U.S. crude inventories plunged 20 million barrels over the previous two weeks, the deepest two-week draw on record, Energy Information Administration data showed on July 10.

  Worries of supply disruption from the Middle East eased somewhat on hopes the West would soon resume talks with Iran over its disputed nuclear programme.

  " It is probably too soon to speculate, but any positive move forward would take some of the risk premium off," Le Brun said.

  Investors still remain concerned about disruption from other major exporters such as Libya. Armed protesters stormed the eastern Libyan oil port of Zueitina demanding export operations be halted, a witness said. (Editing by Tom Hogue)