Oil prices recovered a little on Monday, rising above $76 a barrel as the dollar weakened, but investors kept a wary eye on debt-laden Dubai and its impact on the global economy.

Signs of a sluggish recovery in oil demand and high fuel stockpiles in the United States have kept a lid on crude prices, which are set for a fall of around 0.5 percent this month, their first decline since July.

But hopes that the debt crisis in Dubai might be contained encouraged something of a relief rally on Monday.

The Dubai situation should not have a big impact on the oil market, said David Wech, analyst at JBC Energy in Vienna.

U.S. light crude oil futures for January were up 5 cents at $76.10 a barrel by 1135 GMT. London Brent crude gained 7 cents to $77.25.

Financial markets shuddered last week after Dubai said it would ask creditors of state-owned Dubai World and Nakheel, the builder of its palm-shaped islands, for a standstill pact as a first step toward restructuring billions of dollars of debt.

But confirmation from Abu Dhabi that it would extend some help to Dubai, as well as moves by the United Arab Emirates to offer emergency assistance to banks in Dubai, helped calm some market concerns.

SENTIMENT

Asian stocks made a tentative recovery after last week's steep sell-off, although European shares fell in early trade, depressed by banks. <.EU>

The dollar edged down against other major currencies on Monday, with the dollar index <.DXY> falling 0.5 percent against a basket of currencies.

The dollar and developments in Dubai will be key factors in driving the direction of oil prices this week, analysts said.

Oil is up more than 70 percent this year, but is still roughly half its July 2008 high of more than $147 a barrel.

Sentiment is on edge and analysts said there could be another round of corrections in equities and commodities markets if Dubai were not able to resolve its debt problems.

Eugen Weinberg, analyst at Commerzbank, said the oil market response to Dubai's troubles could be a pointer to underlying sentiment. If oil prices fell, they could slip a lot further, possibly even to below $70 per barrel.

It's an important day, especially for oil, but also for metals. We could see buying in the dips and should the markets move higher, sentiment could improve, Weinberg said.

Implied volatility on U.S. crude futures, a measure of risk perception based on options, rose 15 percent on Friday, the steepest jump since October 2008.

In Europe, where the European Central Bank meets this week amid expectations it will announce plans to exit its super-loose monetary policy, implied stock market volatility has soared.

Separately, Iran announced plans on Sunday to build 10 new uranium enrichment plants in a major expansion of its atomic program, just two days after the U.N. nuclear watchdog rebuked it for carrying out such work in secret.

(Editing by Sue Thomas)

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