The US Federal Reserve on Wednesday stunned markets by announcing it would pump another $1 trillion into the ailing US economy by buying long term government debt for the first time since the 1960s and by expanding its purchases of mortgage bonds.

US light crude for April delivery rose 96 cents to $49.10 a barrel by 0510 GMT, after having touched $49.83 earlier, erasing some of previous session's losses.

London Brent crude rose 97 cents to $48.63.

"It's a combination of a drop in the US dollar and the Fed's move that has pushed up oil prices," said David Moore, a commodity strategist at the Commonwealth Bank of Australia.

"But I suspect more of it is probably on hopes that US policy stimulus would help turn the economy around, or at least stabilise it."

The dollar inched up against a basket of currencies on Thursday, after logging its biggest daily fall since 1985, as the Fed's move to buy long-term Treasuries, aimed at resuscitating lending, prompted a sharp fall in market interest rates.

The Fed's move also sent Asian stocks to a five-week high, as bank shares helped extend a recent rally, and on broader optimism that a stronger US economy will help the continent's export-dependent economies.

Still, analysts cautioned that a continued weakness in demand could limit oil's gains in the near term.

Earlier on Wednesday, oil fell after data showed US crude inventories swelled to the highest level in nearly two years and the World Bank cut its 2009 forecast for China's economic growth by one per cent to 6.5 per cent.

In its weekly report, the US Energy Information Administration (EIA) said crude oil stocks rose 2.0 million barrels to 353.3 million last week -- double the increase forecast by analysts -- while gasoline supplies jumped by 3.2 million barrels, countering forecasts of a 1.2-million-barrel drop.

Slumping demand and rising inventories have helped drag oil off record highs over $147 a barrel struck in July as the economic meltdown hit consumption across the globe.

But oil prices, which sank to levels below $35 last month, have since stabilised in the $40-$50 region, as producer group OPEC cuts output by 4.2 million barrels per day and vowed on Sunday to achieve stricter enforcement of existing curbs.

"While some see the possibility of breaking out of this range to the upside, we maintain that despite OPEC supply cuts in the making, demand considerations will continue to shape the path of oil prices this quarter and next," Harry Tchilinguirian, a senior oil analyst at BNP Paribas, said in a research note.