* HSBC's Oct China PMI hits 18-month high of 55.4
* Equities markets extend slide, dollar index weakens
* OPEC output edges lower - Reuters survey
(Updates throughout)
By Barbara Lewis
LONDON, Nov 2 (Reuters) - Oil rose above $78 a barrel on
Monday, recovering from the previous session's steep drop, after
manufacturing data from China revived expectations economic
recovery would generate extra fuel demand.
Prices also drew some support from a Reuters survey showing
OPEC output had declined slightly, but at the same time
production from non-OPEC Russia reached a new post-Soviet
record.
Traders and analysts said the mood remained cautious as
equities markets sank to one-month lows and braced for the
possible withdrawal of stimulative monetary policy as major
central banks meet this week.
U.S. crude for December delivery <CLc1> rose $1.07 to $78.07
a barrel by 1117 GMT, reversing some of Friday's loss of $2.87.
Brent crude <LCOc1> rose $1.26 to $76.46.
Monday's rally was initially stoked by news HSBC's China
Purchasing Managers' Index (PMI) had risen for the seventh
straight month in October, to an 18-month high of 55.4, pointing
to sustained strength in the country's vast manufacturing
sector. []
"Chinese demand is a straw in the wind," said Christopher
Bellew of brokerage Bache Financial.
"But patchy, fragile are the sort of words being used to
describe recovery. There is no real sign of demand increasing."
FAILURE TO HOLD ABOVE $80
After hitting a high for this year of $82 a barrel in late
October, U.S. crude failed to sustain gains above $80.
Its 3.6 percent fall on Friday followed data from the United
States, the world's biggest energy consumer, showing weaker
consumer sentiment in October and consumer spending cuts in
September.
The figures also dragged down equities markets, which
extended losses on Monday as investors anticipated a week of
meetings at major central banks, including the U.S. Federal
Reserve and European Central Bank.
World stocks as measured by MSCI <.MIWD00000PUS> were down
0.3 percent, adding to last week's more than 4 percent loss, the
largest since early March just before the rally began.
During several months of rising equity markets, oil mostly
moved higher in sympathy, while being negatively correlated to a
declining U.S. dollar.
The dollar edged lower against a basket of currencies on
Monday <.DXY>, potentially lending modest support to oil and
other dollar-denominated commodities, which become cheaper for
non-dollar investors when the U.S. currency falls.
Some in the Organization of the Petroleum Exporting
Countries have voiced concern dollar weakness this year has
driven speculative buying in oil.
After oil climbed above $80, they voiced the possibility the
group could raise output when it next meets in December,
provided there were evidence of economic growth and the price
continued to rise.
The latest Reuters survey found OPEC oil supply had fallen
slightly in October, the first drop since April, following
pipeline sabotage in Iraq and lower output from Nigeria and
leading exporter Saudi Arabia. []
At the same time, production from the biggest non-OPEC
producer Russia climbed to 10.04 million barrels per day (bpd)
in October from 10.01 million bpd in September. []
(Additional reporting by Alex Lawler and Fayen Wong; Editing
by William Hardy)
