Oil Rises On US Data; Bets For Stockpile Drop

NEW YORK, Aug 18 (Reuters) - Oil rallied on Tuesday, with U.S. crude settling up nearly 2 percent, after bullish economic data and bets for lower crude stockpiles in the United States, the world's largest oil consumer.

Short-covering ahead of Thursday's expiry of the key front-month contract in U.S. crude also helped the market advance from a 6-1/2 year low hit on Friday.

New York-traded U.S. crude settled up 75 cents, or 1.8 percent, at $42.62 a barrel. That put it at more than $1 above Friday's low of $41.35, which was the market's bottom since March 2009.

Brent, the London-traded global benchmark for crude, settled up 7 cents at $48.81, steadying from a three-day decline. Brent was initially down on Tuesday after stock markets in China, the second largest oil consumer, fell 6 percent.

The rally in U.S. crude helped cut its discount to Brent <CL-LCO1=R> to below $6 a barrel, from Friday's three-month high above $7.

U.S. crude was up from early in the session after housing starts in the United States hit a near eight-year high in July as builders ramped up construction of single-family homes, suggesting an economy firing on almost all cylinders.

Gains accelerated in the afternoon after an updated Reuters poll showed analysts expecting a drop of around 800,000 barrels in U.S. crude stockpiles last week, versus earlier bets for a decline of 600,000 barrels.