Oil advanced for a second day on Thursday to near $74 as robust US economic indicators re-injected some confidence into financial markets and signaled oil inventories at the world's top consumer may shrink.

Surprisingly strong US housing data and double-digit auto sales growth lifted Wall Street on Wednesday. The optimism extended into Thursday, sending the Nikkei up more than 2.5 percent and the dollar down by a third of a percent against a basket of currencies.

US crude stockpiles fell a larger-than-expected 1.4 million barrels last week, an industry group said on Wednesday.

Oil traders awaited confirmation of the decline from government statistics due later on Thursday.

Prices of US crude for July delivery rose as much as $1.03 to $73.89 a barrel and were up 70 cents at $73.56 by 0319 GMT. ICE Brent crude climbed 70 cents to $74.45.

"We've seen oil prices taking their cues to a large degree from equity market movements," said Toby Hassall, chief commodities analyst at CWA Global Markets Pty Ltd.

"If this spike in risk aversion is reversing, you might expect the US dollar to give up some recent gains. That improvement in risk appetite might feed into oil prices, and the typical seasonal decline in stockpiles in the US would also be supportive."

US gasoline supplies fell a larger-than-expected 962,000 barrels last week, according to Wednesday's American Petroleum Institute report, compared with forecasts for a 500,000 barrel drop.

Distillates, including heating oil and diesel, rose 852,000 barrels, beating expectations for a 100,000-barrel gain.

Government statistics on inventories from the Energy Information Administration will be published on Thursday at 1500 GMT, a day later than usual because of this week's Memorial Day holiday.

Concern of a slowdown in the Chinese economy weighed on oil prices earlier this week, adding to soured sentiment because of Europe's debt crisis.

Oil prices have traded in a range between $71.64 and $75.33 this week, torn by evidence that the world's biggest oil-consuming nations are posting steady demand growth and speculation that consumption will be hurt by a stagnant European economy.

"There is still uncertainty throughout the global economy," Hassall said. "I expect volatility to remain elevated in the near term. Europe has structural problems that have yet to be solved." – Reuters