Oil rose to above $85 a barrel on Wednesday as rising factory output in China and a report saying U.S. inventories declined countered lingering concern about Europe's debt problems. China's official purchasing managers' index (PMI) climbed to a seven-month high in November. Industry group the American Petroleum Institute on Tuesday said crude inventories fell more than expected. "We had some vaguely helpful API figures in that the crude stocks fell and there were some bullish statistics from China," said Christopher Bellew, a broker at Bache Commodities. U.S. crude for January gained $1.31 to $85.42 a barrel by 1131 GMT, after tumbling almost 2 percent on Tuesday. Brent crude was up $1.38 at $87.30. Oil in New York posted its third straight monthly gain in November when it rose more than 3 percent. During the month it also touched a 25-month high of $88.63. The official Chinese purchasing managers' index (PMI) rose to a seven-month high of 55.2 in November from 54.7 in October, topping the median forecast of 54.7 in a Reuters poll. "The rise of China's purchasing managers' index in November suggests that the demand for oil in the world's second-largest oil consuming country is still robust," said analysts at Commerzbank in a report. "There is no need to fear a weakening of demand in the immediate future. China accounts for about a third of the expected rise in global oil demand this year." In top consumer the United States, crude inventories fell by 1.1 million barrels in the week through Nov. 26, the American Petroleum Institute (API) reported on Tuesday, compared with expectations for a 900,000-barrel decline. Inventories of distillates including heating oil and diesel unexpectedly rose by 224,000 barrels and gasoline stockpiles rose 1.1 million barrels, more than forecast. Investors will be looking to the U.S. Energy Information Administration's weekly supply report due at 1530 GMT for confirmation of the inventory changes. Oil also rose as the U.S. dollar weakened against a basket of currencies. Oil and dollar-denominated commodities often move inversely to the dollar. The euro rose on Wednesday as a three-day selling spree lost steam. Doubts whether the euro zone can contain debt problems facing some members kept the single currency in range of a 2-1/2-month low versus the dollar. Analysts said the market was looking for more pre-emptive action by policymakers after a rescue package for Ireland as pressure in the euro zone bond market was widening to more countries including Belgium. (Additional reporting by Alejandro Barbajosa; editing by Keiron Henderson)

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