-- Oil is higher on back of rally in European equities, positive jobless claims data from Germany -- Tension between Iran and the West provides support for crude oil prices -- Stronger dollar against the euro makes oil a more attractive buy By Jenny Gross Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Crude oil futures rose more than 2% Tuesday as investors worried that an escalating dispute between the U.S. and Iran over Iran's nuclear program would disrupt global oil supply. At 1111 GMT, the February Brent contract on London's ICE futures exchange was up $2.54, or 2.4%, at $109.92 a barrel. The February contract on the New York Mercantile Exchange was trading up $2.48, or 2.5%, at $101.31 per barrel. Contracts across both sides of the Atlantic started the year on a bullish note on worries that Iran would block its Strait to Hormuz, through which a third of sea-borne oil passes. European equities were also higher on the back of a rally after data showed signs of a pick-up in China's manufacturing activity. Data released Sunday showed China's official Purchasing Managers Index rose to 50.3 in December compared with 49.0 in November, higher than the median forecast of 49.0 from seven economists polled by Dow Jones Newswires. In additional, a drop in the December number of jobless claims in Germany, according to Tuesday data, contributed to the rally. Brent crude hit its highest level Tuesday morning since Dec. 13, when crude oil jumped on a market rumor that Iran had closed the Strait of Hormuz. On Saturday, President Barack Obama signed into law sanctions against Iran's central bank. Tension between the West and Iran over Iran's nuclear program is unlikely to fizzle out before a key meeting of European Union leaders at the end of January, said Olivier Jakob, an analyst at Petromatrix, and this should support oil prices. "Many traders are coming back to the market today, so the main thing is to be able to assess the potential risk with Iran," Jakob said. "2011 was really the story of Libya and the question now is whether 2012 is going to be the story of Iran." JBC Energy said in a note that the "muscle flexing" between Iran and the U.S. should keep markets volatile and vulnerable to sudden price jumps. A weaker dollar against the euro was also bullish for oil prices, with the euro gaining 0.8% at $1.3044 from late Monday in New York. A weaker dollar makes purchasing oil less expensive for holders of currencies other than the greenback. At 1111 GMT, the ICE's gasoil contract for January delivery was up $21.25, or 2.3%, at $945.25 per metric ton, while Nymex gasoline for February delivery was up 434 points, or 1.6%, at $2.7008 per gallon. -By Jenny Gross, Dow Jones Newswires; 4420-7842-9239; jenny.gross@dowjones.com --Ga-Woon Philip Vahn in Singapore contributed to this report.

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