Modest growth in Chinese purchasing manager indices kicked off a global set of PMIs that could lend further credence to the idea that the global economy is mending, although Beijing's decision to raise domestic fuel prices on Monday could slow the oil demand recovery that's visibly underway.

For the moment, financial markets appeared to be driving oil, with Japan's Nikkei stock average up 1.6 per cent to hit a nearly eight-month high, while the dollar was little changed near its lowest against the euro this year. "It's mainly an equities-driven rally today," said a trader at a leading bank. "There are no strong fundamentals at play today but the market is starting to believe that a recovery is on its way."

US light, sweet crude rose 64 cents to $66.95 a barrel by 0356 GMT, off its earlier peak of $67. ICE Brent crude rose 58 cents to $66.10 a barrel. But the market is still down 54 per cent from its record high over $147.

Prices rallied 30 per cent in May, hitting their highest since early last November and giving OPEC enough hope about the outlook that it agreed to maintain production at last week's meeting.

At the same time, the group seems unlikely to move quickly to curtail oil's rally. At the weekend Saudi Oil Minister Ali al-Naimi said OPEC would wait until crude inventories fall to around 53 days of forward cover before considering raising output, nearly 10 days below current levels.

Some fundamentals are now showing gradual signs of improvement, with US crude stocks falling sharply last week and gasoline inventories dropping for the fifth week, but analysts say economic conditions and financial markets have been key.

The US dollar and oil prices are trading in near-perfect correlation on a 30-day basis, and Friday's $1.23 crude oil gain came as the dollar sank to a five-month low as investors bought higher-yielding currencies and assets.

China's manufacturing sector lost some momentum in May but continued to expand for the third month in a row, according to the country's official PMI survey, which slipped to 53.1 from 53.5, but brokerage CLSA's PMI index edged up to a 10-month high of 51.2 from 50.1 in April, the reports showed.

But many analysts are cautioning that the oil market may be racing ahead of reality, fuelled largely by speculators that have expanded their net length in NYMEX crude contracts to over 40,000 lots, the highest since February.

"My thinking is that most of the commodity markets, the base metals as well as oil, have moved to factor in economic recovery, and probably a fairly decent 'V'," said Commonwealth Bank of Australia commodity strategist David Moore.

"There is a risk that if economic data does not continue to support this view of the world that markets become disappointed with the pace of economic recovery, leading to price setbacks."