NEW YORK - Oil prices spiked above US$77 a barrel Tuesday as the U.S. dollar weakened and the stock market climbed on upbeat economic news.
Benchmark crude for March delivery rose $2.88 to settle at $77.01 a barrel on the New York Mercantile Exchange, after hitting a day high of $77.28. In London, Brent crude was up $3.17 to settle at $75.68 on the ICE futures exchange.
A report on manufacturing in the New York area was stronger than expected. The Empire State manufacturing index rose to 24.91 this month, compared with a forecast of 18, according to economists polled by Thomson Reuters. The index was 15.92 last month.
The industrial sector has shown growth in recent months, adding to hopes that the U.S. economy is on a path to a sustained recovery.
Reports on housing starts, jobless claims and inflation are all due out later this week.
There is often a correlation between oil prices and the U.S. dollar's exchange rate, with investors' risk appetite and other factors moving funds back and forth between commodities like oil and the U.S. currency.
The U.S. dollar has made strong gains on the euro during the past weeks as some members of the European Union have struggled with large budget deficits. But on Tuesday the dollar tumbled against the euro as corporate earnings and other positive economic reports helped offset worries about debt and credit across the globe.
The euro jumped to $1.3757 by afternoon in New York from $1.3600 late Monday, as the EU appeared to take a tougher stance on Greece's deficit plights.
Oil has traded between $69 a barrel and $84 for the last few months as investors struggle to gauge global crude demand.
On Monday, Japan said its economy grew an annualized 4.6 per cent in the fourth quarter while China raised reserve requirements for banks last week in a bid to slow economic growth and avoid asset bubbles.
"There are some signs of improvement in OECD countries as a whole with strong Japanese growth data," Barclays Capital said in a report. "Worries about softening in China's commodity demand are overblown."
In other Nymex trading in March contracts, natural gas lost 15.8 cents to settle at $5.310 per 1,000 cubic feet.
Heating oil rose 7.74 cents to settle at $1.9963 a gallon, and gasoline climbed 5.87 cents to settle at $1.9882 a gallon.
Associated Press writer Pablo Gorondi contributed to this report.