By Brian Baskin Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Crude futures wavered after a two-day rally Wednesday, as a potential jump in U.S. oil inventories threatened to douse optimism about the economic recovery. Light, sweet crude for March delivery recently traded 23 cents, or 0.3%, lower at $77 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 4 cents lower at $76.02 a barrel. The week's rally, which has seen oil prices rise nearly 5%, sputtered to a halt ahead of U.S. oil and fuel inventory data, due out from the U.S. Energy Information Administration at 10:30 a.m. EST. Recent reports have shown a slow drop in stockpiles, but oil demand stubbornly remaining near lows seen during the recession. Rising supplies and sluggish demand contrast with optimism about a pickup in the U.S. economic recovery that has driven oil prices higher this week. Strong pending home sales data released Tuesday sent futures 3.8% higher, building on gains made the day before on a rise in manufacturing activity. Futures rose up to $78.04 a barrel early Wednesday, but traders were wary of pressing higher after the American Petroleum Institute, an industry group that compiles data similar to the government's, on Tuesday reported an unexpected gain in oil inventories. "There's been a nice rally this week ... if you've made some money, you've got to position yourself for (government) numbers that might be in line with the APIs," said Addison Armstrong, an analyst with Tradition Energy in Stamford, Conn. The API reported a 4.7-million-barrel increase in oil inventories, where analysts gave an average forecast for no change in a Dow Jones survey. Gasoline stocks fell 1 million barrels, contrasting with expectations for a 1-million-barrel rise, while distillate inventories, including heating oil and diesel, dropped 1 million barrels, slightly more than the predicted 800,000 barrels. The data could be quickly forgotten as markets brace for monthly payroll data, including the January unemployment rate, due on Friday. Oil's rally would quickly resume if the Labor Department reports that employment rose last month, said Jim Ritterbusch, president of the trading advisory firm Ritterbusch and Assoc. in Galena, Ill. "We cannot rule out further gains toward the $80 area by week's end if the employment numbers provide a bullish shocker," Ritterbusch wrote. Traders are also watching for events in Iran that could send oil in either direction. Iran state television reported Wednesday the launch of a satellite rocket, sparking concern that the same technology could be used to launch missiles. But the launch came the day after Iran's President Mahmoud Ahmadinejad surprised many by saying he had "no problem" sending low-enriched uranium abroad for further purification, a move that would allay concerns that the fuel is intended for military purposes. Iran is a major oil producer and borders the Strait of Hormuz, a key shipping lane for crude tankers. Front-month March reformulated gasoline blendstock, or RBOB, recently traded 97 points, or 0.5%, higher at $2.0276 a gallon. March heating oil traded 3 points lower at $2.0314 a gallon.

Source