* Brent, U.S. crude settle up more than $2 a barrel each
* Market up over $1 in early trade on talk of algorithmic trade
* EIA added to gains later, reporting crude build below API data
* Rally extends into post-settlement, with U.S. crude up $3 (New throughout; adds post-settlement gains and broker comments)
By Barani Krishnan
NEW YORK, Oct 28 (Reuters) - U.S. crude oil prices rose more than 6 percent on Wednesday as the government reported an inventory build that reversed bearish market expectations, putting the market on a volatile course after three straight days of losses.
The spike of more than $3 a barrel stalled oil bears' expectations for a longer and deeper price rout after two-month lows hit on Tuesday on worries about high supplies and weak demand.
Oil rallied from early in the session, rising more than $1 on what was described as a big algorithmic trade.
The U.S. Energy Information Administration (EIA) added to the rally when it reported a 3.4 million-barrels crude build in line with some traders expectations, but below the 4.1 million-barrel hike cited on Tuesday by industry group the American Petroleum Institute. EIA/S API/S
Crude stockpiles, however, fell 785,000 barrels at the Cushing, Oklahoma, delivery hub for U.S. crude futures.
"The market was looking for more bearish information and got a neutral report," Scott Shelton, energy broker and commodities specialist with ICAP (L:IAP) in Durham, North Carolina.
Oil pared gains briefly in afternoon trade as the dollar .DXY surged on bets the Federal Reserve was still open to raising U.S. interest rates in December. urn:newsml:reuters.com:*:nL1N12R2IF
U.S. crude CLc1 settled up $2.74 at $45.94 a barrel, hitting a session high at $46.01. In post-settlement, it reached a peak of $46.22 with brokers citing the likelihood of more short covering in a thinly-traded market.
Brent LCOc1 , the global benchmark for oil, closed up $2.24 at $49.05.
U.S. crude's rise of 6 percent was the largest in two months. Brent's 5 percent advance was the biggest in three weeks.
The EIA also said that stockpiles of gasoline and distillates, which include diesel, fell more than expected. U.S. gasoline RBc1 and ultra-low sulfur diesel HOc1 futures gained more than 4 percent ahead of their contract expirations on Friday.
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