LONDON (Reuters) - Oil rose above $81 a barrel on Monday, rebounding from an earlier decline, as a falling U.S. dollar and gains in U.S. equities outweighed a weak oil supply and demand picture.

An employee fills a car with fuel at a petrol station in Tirana July 28, 2008. REUTERS/Arben Celi

The dollar weakened against a basket of currencies, making oil cheaper for holders of other currencies. U.S. stocks opened higher after a sell-off in the previous session.

“The financial market environment is still supportive for oil prices despite still weak fundamental data,” said Carsten Fritsch, analyst at Commerzbank.

U.S. crude for December delivery was up 99 cents to $81.49 by 1420 GMT, having earlier fallen to as low as $79.57. It reached a 2009 high of $82.00 on Oct. 21. Brent crude rose $1.06 to $79.98.

The dollar fell to a 14-month low against the euro. A Chinese report saying Beijing should increase its holdings of euros and yen in its foreign reserves knocked the U.S. currency.

U.S. crude oil was expected to average $74.00 a barrel in 2010, a Reuters poll showed on Monday, as almost one third of analysts surveyed increased their forecasts on the back of a stronger economic outlook.

For a graphic showing the Reuters oil price poll, click here

$85?

Goldman Sachs said the near 10 percent jump in prices over the last two weeks was due to a rebound in diesel demand, and backed a view prices will hit $85 a barrel before 2009 is out.

China was again the bright spot for the global economic outlook, following comments by Vice Premier Li Keqiang that the country’s economic recovery has consolidated after having performed better than expected.

Its strong economic growth was reflected in a 12.5 percent year on year jump in implied oil demand, the sixth rise in a row and first double-digit growth since August 2006.

The earnings season continues this week, offering more clues about the strength of economic recovery.

Verizon Communications Inc reported third-quarter revenue that rose from a year earlier but profit that fell as costs increased.

Oil rallied despite potentially bearish near-term supply developments. Nigeria’s main militant group reinstated a ceasefire on Sunday in the oil-producing Niger Delta to allow for peace talks.

The oil price rally has caused some concern within the Organization of the Petroleum Exporting Countries, prompting some officials to raise the prospect of raising its oil output.

OPEC will lift supply to protect the global economic recovery at a meeting in December if oil prices rise to $100, Jose Botelho de Vasconcelos, the group’s president, said on Sunday.

(Additional reporting by Fayen Wong; editing by James Jukwey)