* Oil slumps by most in a month, US lowest since Feb
* Dollar index up 1.6 pct on inflation, euro zone woes
* US crude erases early gains from stockpiles report
* Keystone pipeline rationing may curb Cushing stocks (Corrects spelling of Greek Prime Minister's name para 11) (Updates Keystone pipeline shipment curbs, last paragraph)
By Gene Ramos
NEW YORK, June 15 (Reuters) - Oil slid more than 4 percent on Wednesday, as signs of further economic weakness fed demand worries and a rising dollar weighed, triggering technical sell stops and sending U.S. crude to its lowest since February.
U.S. crude weakened early on data showing a rise in core inflation and shrinking New York manufacturing. After a brief rise on news of a big drop in weekly U.S. crude stocks, prices succumbed to intensifying selling pressure, breaking below the 150-day moving average and $95 key support.
"It's a rush for the exits. The market has been overvalued for some time now...the Brent market has been a bubble and the bubble is bursting today," said Tim Evans, energy analyst at Citi Futures Perspective.
"In my opinion, WTI would be fairly valued at $85 a barrel and Brent at $90 a barrel," Evans added.
U.S. July crude
Brent crude for July delivery
Brent's premium against U.S. benchmark West Texas
Intermediate for the second-month August contract narrowed by
more than $1 to around $18 a barrel after the July spread had
blown out to a record $22.80 on Tuesday.
EURO, STOCKS SLUMP
The slump came as the U.S. dollar extended gains for its biggest daily rise since August, with the dollar index <.DXY> up 1.7 percent, while the S&P 500 stock index <.SPX> tumbled by more than 2.0 percent to its lowest level since March. [.N]
The euro slid against the dollar, heading for its worst day in more than a month on worries about the Greek debt crisis.
European ministers failed on Tuesday to reach agreement on how private holders of Greek debt should share the costs of a new bailout, putting the onus on leaders of Germany and France to forge a deal later this week. [USD/] <.DXY>
Greek Prime Minister George Papandreou, said he will form a new government on Thursday and seek a vote of confidence from his parliamentary group after street protests against his austerity plans. [ID:LDE75E041]
The session reminded oil traders of early May, when prices swooned from recent highs. Other commodities also fell, with corn slumping toward its biggest three-day loss in a year and a half. The Reuters-Jefferies CRB index <.CRB> fell 2.3 percent.
U.S. core consumer inflation rose more than expected in May to post its largest increase in nearly three years, which could prompt the Federal Reserve to increase interest rates sooner rather than later. [ID:nN15281293]
A separate report showed manufacturing in New York State unexpectedly shrank for the first time since November, surprising economists who had expected a rise.
KEYSTONE RESTRICTED
Macroeconomic conditions and debt fears overshadowed weekly oil inventory data, which confirmed a much larger than expected decline in stocks due in large part to a reduction in Midwest supplies as a key Canadian pipeline shut down. [EIA/S]
Inventories in Cushing may continue to draw after Canada's
TransCanada Corp
Capacity on the line will be restricted further to between 400,000 and 450,000 bpd in July while the work is going on, it said.
(Additional reporting by Antonita Devotta and Robert Gibbons in New York; Christopher Johnson and Dmitry Zhdannikov in London; and Alejandro Barbajosa in Singapore; Editing by David Gregorio and Sofina Mirza-Reid)