SAN FRANCISCO (MarketWatch) -- Crude-oil futures rose more than 3% Monday to trade above $80 a barrel, as rallying global equity markets boosted sentiment and highlighted hopes of increased energy demand. Crude oil for September delivery rose $2.45, or 3.1%, to $81.40 a barrel on the New York Mercantile Exchange. A close around these levels would be oil's highest since early May. Oil pushed higher as manufacturing in the U.S. slowed less than expected. The Institute for Supply Management reported its index feel to 55.5% in July from 56.2% in June, but the decline was not as sharp as expected. Economists had forecast a fall to 55%. Earlier on, futures prices had increased even as China's purchasing managers index indicated a first contraction in more than a year. Oil is reflecting hopes about the global economy and it is relatively affordable at current levels, said Carl Larry, president of Oil Outlooks & Opinions in Houston. "There's new money coming in at the beginning of the month and we know that there will be growth. It's going to be slow, but there is going to be growth," he said. U.S. stocks opened sharply higher as Asian and European stock markets posted solid gains after strong earnings reports from banking giants HSBC Holdings PLC (HBC 53.96, +2.88, +5.64%) and BNP Paribas (FR:BNP 55.67, +2.96, +5.62%) . "Never before have oil prices correlated with U.S. stock markets as strongly as in the recent past," said analysts at Commerzbank AG in a note to clients. As for the bad news from China, equity investors speculated that the slowdown would prompt authorities there to shift to more business-friendly policies, said Tim Evans, an analyst with Citigroup's Citi Futures Perspective. "And so the market tried to persuade us that bad news is really good news ... No wonder there's talk of this kind of trade as an 'appetite for risk,' since it is certainly not clear that oil market conditions are actually bullish," he said in a note to clients. Also supporting oil and other commodities, the dollar index, which compares the U.S. unit to a basket of six other currencies, declined 0.7% to 80.94. A weaker dollar is generally favorable for commodities as it makes them less expensive for holders of other currencies. Crude futures ended higher Friday and gained 4.4% in July, their best month since March and their second consecutive monthly gain.

Source