Oil prices touch 10-month high on economic hopes

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Oil prices gained on Monday, briefly touching a 10-month high near $75 a barrel on expectations an economic recovery would revive ailing world energy demand.

U.S. crude rose 48 cents to settle at $74.37 a barrel after peaking at $74.81, the highest intraday price since October 21. Brent crude gained 7 cents to $74.26.

The gains came alongside strength on Wall Street, where the stock market also briefly touched 10-month highs before pulling back slightly after a four-day rally. <.N>

The stock market's rise is driving crude oil futures higher, with the outlook controlled by economic optimism, said Phil Flynn, analyst at PFGBest Research in Chicago.

Commodities markets have tracked stocks indexes closely in recent months as dealers view equities as a lead indicator of economic performance.

Oil dealers said many investors were also using commodities as a hedge against the dollar, particularly oil as OPEC producers work to restrain supply.

Oil continues to ride a wave that is propelled by a fear of rising inflation and currency devaluation, OPEC members' unusually high level of compliance with production constraints, and a high level of oil importation into China, Mike Fitzpatrick, vice president at MF Global, said in a note.

A report Monday showed implied oil demand in China, the world's No. 2 energy consumer, rose in July for the fourth consecutive month as refiners ramped up activity.

Feeding hopes the recession was waning, reports on Monday showed new industrial orders in the euro zone rebounded in June and U.S. economic activity improved again in July.

A string of positive economic data from various countries and rallying stock markets helped lift oil prices by 9.5 percent last week. Crude is up around 65 percent in 2009 and may head higher still, according to analysts.

We could now easily move toward the $80 mark, if the growing enthusiasm about the budding economic recovery continues to dominate sentiment, said Edward Meir, oil analyst at MF Global.

Renewed tensions in Nigeria could also add support to oil prices. Nigeria's main rebel group said on Saturday it would resume attacks against Africa's biggest energy industry next month, overshadowing the surrender of hundreds of arms by rebels in a federal amnesty program.

Oil analysts expect U.S. petroleum inventory data this week to show small declines in crude oil and gasoline supplies and a build in distillates inventories, according to a Reuters poll.

(Additional reporting by Alex Lawler in London and Fayen Wong in Perth; Editing by David Gregorio)

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