UPDATE 12-Brent up on dollar drop, but equities limit rise

* Dollar weaker vs yen, euro, helps commodities bounce

* U.S. stocks slip late, giving up earlier gains

* Brent/WTI spread widens to record over $26/bbl

* Coming up: U.S. Sept crude contract expiry on Monday (Recasts, updates prices, market activity)

By Robert Gibbons

NEW YORK, Aug 19 (Reuters) - Brent rose in choppy trading on Friday, managing a small weekly gain as the dollar fell to a record low against the yen.

U.S. crude futures gave up gains in late trading to settle lower, posting its fourth weekly loss.

Limiting the revival of the inverse-correlation trade between commodities and the dollar was a late-session equities slump on Wall Street as fears the U.S. economy may be headed for another recession pulled stocks lower.

Even though U.S. crude limped into the close, its rally from lows under $80 a barrel and Brent's rebound followed helped shore up prices after another deep sell-off on Thursday spurred by weak U.S. manufacturing data that revived fears of a double-dip recession.

Investors are now looking for any sign of Federal Reserve action when bankers gather in Jackson Hole, Wyoming, later this month.

"The reversal of the dollar versus the euro, and of course then the record low against the yen, sparked the oil rally," said Chris Dillman, analyst at Tradition Energy in Stamford, Connecticut.

The dollar initially came under pressure after Spain said it would temporarily cut the sales tax on new house purchases in a move aimed at stimulating the construction sector. The greenback later fell to a record low against the yen on a newspaper report suggesting Japan did not plan to intervention often. [FRX/] [USD/]

With trading choppy, Brent's premium to U.S. crude reached a record $26.42 a barrel intraday, eclipsing the previous record from earlier this month.

U.S. stocks fell back in afternoon trading in New York. [.N] Stocks had turned positive after a weaker open, also benefiting from the dollar's slip and the commodities bounce.

"Crude has been tracking the stock market and the weaker dollar is supportive," said Dan Flynn, analyst at PFGBest Research in Chicago.

Flynn and other traders also noted that tropical waves being tracked in the Atlantic may have helped lend support to U.S. refined products. [ID:ID:nL4E7JJ2LK]

ICE Brent crude for October delivery rose $1.63 to settle at $108.62 a barrel, bouncing after sliding to $105.06 and having reached $109.40. Brent managed a 59 cent weekly gain, snapping three consecutive weekly slips.

U.S. gasoline and heating oil futures climbed in tandem.

U.S. front-month September crude slipped 12 cents to settle at $82.26 a barrel, recovering from a $79.17 low and then retreating from an $83.55 intraday high. It dropped 3.65 percent in its fourth consecutive weekly slump.

U.S. crude edged back up and continued the seesaw trading in post-settlement trading on the Globex electronic trading platform.

The U.S. September crude contract expires on Monday.

Despite the seesaw trading trajectory, oil market implied volatility slipped. The Chicago Board Options Exchange's Oil Volatility Index <.OVX> fell to 54.71 percent, after closing above 57 percent on Thursday.

Crude trading volumes surpassed 30-day averages and were on pact to top Thursday's totals.

Even at Brent's intraday peak it was $11 off its monthly high reached Aug. 1. This month's drop in oil prices has coincided with a wider market sell-off as investors have fled riskier assets for safer havens, such as gold . Gold reached another record on Friday and on was pace for its biggest weekly gain since 2008. [GOL/] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

A 24-hour technical outlook on Brent:

http://graphics.thomsonreuters.com/WT1/20111908090731.jpg

A 24-hour technical outlook on WTI:

http://graphics.thomsonreuters.com/WT1/20111908083229.jpg

A graphic on commodity prices 2008/2010/2011:

http://link.reuters.com/vam88r

More Libya & Middle East Crisis stories [TOP/MEAST]

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The Reuters-Jefferies CRB <.CRB>, a global benchmark for commodities, rose more than 1 percent on Friday, after falling more than 2 percent the previous session -- its largest daily decline since Aug. 8, when energy, metals and agricultural markets slumped following the Standard & Poor's downgrade of the U.S. credit rating.

Oil investors also closely watched developments in Libya after rebel advances cut off Tripoli, the nation's capital, isolating the government of Muammar Gaddafi. [ID:nLDE77H0Z5]

Rebels hope to resume oil output at two large fields in eastern Libya within weeks, hoping to ease fuel shortages and potentially restore some supply to global markets. [ID:nL5E7JJ2VU] (Additional reporting by Gene Ramos in New York, Barbara Lewis in London and Francis Kan and Manash Goswami in Singapore; Editing by John Picinich and Sofina Mirza-Reid)