An oil rig is shown in this file photo.

London - Global oil prices rebounded on Tuesday on bargain hunting after sharp falls stoked by turbulence in global financial markets, as traders awaited the Federal Reserve's next move on stimulus.

Brent North Sea crude for delivery in March added 30 cents to stand at $106.99 a barrel in early afternoon deals in London.

New York's main contract, West Texas Intermediate (WTI) for March, gained 61 cents to $96.33 a barrel.

Crude futures had fallen sharply on Monday, tracking heavy losses in global equity markets spurred by weak corporate earnings and uncertainty in emerging economies.

Financial markets have also been shaken by data last week indicating manufacturing activity in China - the world's top energy consumer and a key driver of global growth - had contracted in January.

“Markets remain skittish and the mood is somewhat cautious as the focus remains on emerging market travails,” French bank Credit Agricole said in a note.

“The current bout of pressure may yet be contained but there is still some way to go before market stress is alleviated,” it said.

Kelly Teoh, market strategist at IG Markets in Singapore, said investors were also keenly awaiting the outcome of a two-day US Federal Reserve policy meeting scheduled to end Wednesday.

The US central bank's Federal Open Market Committee (FOMC) is widely expected to decide on a further $10 billion reduction in its monthly asset purchases, to $65 billion.

In December, the FOMC said it would begin tapering the stimulus by $10 billion to $75 billion a month in January.

The so-called tapering of the Fed's asset purchases would likely boost the greenback, making dollar-priced oil more expensive for countries using other currencies, dampening demand.

Teoh said there was a likelihood that the Fed could surprise investors by deciding against a further pullback of its stimulus due to the emerging market strains.

“They (the Fed) can see that there is a lot of volatility in the market already as it is,” she told AFP. - Sapa-AFP