Oil briefly rose above $79 a barrel to a fresh five-week high on Tuesday, supported by expectations of colder U.S. weather and concerns over political developments in Iran.

U.S. crude for February delivery rose as high as $79.39 a barrel after U.S. home price data for October was released showing no change from September, but then eased back to $78.84 by 1457 GMT (9:57 a.m. EST) in thin but volatile intra-holiday trade.

Oil closed at $78.77 on Monday, its highest since November 19.

London Brent crude for February was up 28 cents at $77.60.

The S&P composite prices in 20 metropolitan areas in the United States was flat in October, which briefly sent oil markets on a sharp rise before retracing to near flat trade that analysts said was more in line with geopolitical events.

Iran is clearly a hot point, because it is such a major producer. Just remember how prices went up recently when soldiers from Iran went into Iraq and occupied an oilfield, said oil analyst Christophe Barret at Calyon.

On Tuesday, tens of thousands of Iran government supporters rallied, state media said, and a reformist party called on the country's rulers to apologize to the nation two days after eight people were killed in anti-government protests.

Earlier this month, a group of Iranian troops took over an inactive but disputed oil well in a remote region along the Iran-Iraq border, spooking markets and pushing up the price of crude.

Edward Meir at MF Global wrote in a global daily report that while the current Iranian strife is not directly impacting oil flows, any move by the opposition toward general strikes that include Iranian oil workers would affect markets directly.

While we wait for events to unfold, the tensions are being picked up by crude oil markets and reflected in the firmer prices we are seeing, Meir said.

DOLLAR HOLDS

The dollar held firm near a two-month high against the yen on the view that the U.S. economy is recovering well, despite falling against the euro and other higher-yielding currencies.

Oil has often eased this year as the dollar firms, making crude more costly for holders of other currencies.

A Reuters poll of analysts showed U.S. crude inventories likely fell 1.5 million barrels last week as refiners drew down stocks for year-end tax issues and imports fell for what would be the fourth straight week of declines.

Energy Information Administration data last week showed crude stocks fell a hefty 4.9 million barrels, following a slide of more than 3 million barrels in the previous two government reports.

Temperatures in the U.S. Northeast -- the world's largest heating oil market -- were expected to average below normal through Friday, private forecaster DTN Meteorlogix said.

(Additional reporting by Judy Hua in Singapore, editing by Sue Thomas)

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