Oil futures jumped in early trading Tuesday along with equity markets after the latest report on U.S. housing starts showed home building surging well past expectations, in a positive sign for the U.S. economic recovery.

The market was also watching news of unrest in an oil-producing province of Kazakhstan and a meeting of world leaders in Rome to consider sanctions on Iran's oil exports.

Light, sweet crude for January delivery was up $2.92, or 3.1%, to $96.80 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures Europe exchange was up $2.92, or 2.8%, to $106.56 a barrel. Volume was far below average because of the holiday season. The January Nymex contract expires at the end of trading Tuesday.

Analysts and traders said the market was bouncing back from an oversold condition earlier in the week as market sentiment has improved about Europe's financial stability and the U.S. economic recovery.

"It does seem that the fears that bubbled up to the surface last week have subsided a bit," said Gene McGillian, a broker and analyst with Tradition Energy.

The Commerce Department said housing starts increased 9.3% to a seasonally adjusted annual rate of 685,000, the highest level in 19 months. Economists expected a rise of 0.3%. Stocks rose as the market opened, with the Dow Jones Industrial Average rocketing 149 points in the first minute of trading.

In Kazakhstan, the government declared a state of emergency in the Caspian oil town of Zhanaozen after clashes between laid-off oil workers and security forces during an anti-government protest. Kazakhstan exported 1.5 million barrels of oil a day in 2010.

In Rome, leaders of 11 nations including the U.S. and Saudi Arabia are meeting to discuss sanctions of Iranian oil exports. Iran is the second-largest exporter of crude in the Organization of Petroleum Exporting Countries, supplying 2.5 million barrels per day to the world.

Front-month January reformulated gasoline blendstock, or RBOB, recently rose 6.76 cents, or 2.7%, to $2.5567 a gallon. January heating oil was up 5.98 cents, or 2.2%, to $2.8402 a gallon.

-By Christian Berthelsen, Dow Jones Newswires; 212-416-2381; christian.berthelsen@dowjones.com.