Light, sweet crude for March delivery rose 39 cents to US$89.80 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore.

The contract gained US$2.42 to settle at US$89.41 a barrel in the floor session.

Prices were also boosted on Thursday after the US government reported a drop in heating oil supplies.

But the overnight gains really accelerated - with oil posting its largest rise in over three weeks - on word that President George W. Bush's administration and Congressional leaders had reached an agreement on an economic stimulus package.

Traders have bet that the tax refunds of US$600 to US$1,200 that are part of the package will boost oil demand.

Meanwhile, the weekly inventory report from the Energy Department' s Energy Information Administration showed stocks of distillates, which include heating oil and diesel fuel, fell 1.3 million barrels last week.

Analysts surveyed by Dow Jones Newswires had said, on average, distillate supplies would remain unchanged.

That decline was countered by domestic gasoline inventories, which jumped 5 million barrels, more than triple the analysts' expectations.

Crude inventories rose 2.3 million barrels, the EIA said, slightly more than expected.

Because the report was mixed, investors' attention has returned to the economy and rebounding global stock markets.

Oil prices fell in recent days, following equity markets that dropped earlier this week on US recession worries.

But with the Federal Reserve's emergency cut in its key interest rate on Tuesday, stock markets worldwide have been rebounding, although extreme volatility continues to mark trade.

On Friday in Asia, Japan's benchmark Nikkei index was up 2.9 per cent in afternoon trade, while Hong Kong's Hang Seng had gained as much as 5.9 per cent in its morning session.

On Thursday, the Dow Jones industrial average gained more than 100 points for its second straight positive finish.

Energy investors often view stocks as a proxy for economic growth, fearing that a slowdown would curtail demand for oil and petroleum products such as gasoline and heating oil.

In London, March Brent crude rose 33 cents to US$89.40 a barrel on the ICE Futures exchange in London.

Nymex heating oil futures rose 0.92 cent to US$2.4855 per 3.8 litres while gasoline prices added 0.97 cent to US$2.2925 a gallon.

November natural gas futures rose 5.8 cents to US$7.86 per 1,000 cubic feet. -- AP