NEW YORK (Reuters) - Oil prices rose more than 2 percent on Monday to their highest since October 2008, after U.S. manufacturing, home sales and jobs data boosted optimism about a recovery in the world’s top economy.

The U.S. service sector grew in March at its fastest pace in nearly four years while pending home sales also rose, according to the ISM industry survey and a National Association of Realtors report on Monday.

That added to optimism following Labor Department data released on Friday showing U.S. payrolls rose by 162,000 last month, the fastest rate in three years.

U.S. crude oil for May delivery settled up $1.75 to $86.62 a barrel. Prices have risen by 8.3 percent since March 26, in their steepest 5-day winning streak since December.

Brent crude rose $1.87 to settle at $85.88 a barrel.

“Economic optimists have taken control of the market,” said Gene McGillian, analyst at Tradition Energy in Connecticut.

“We’re in uncharted territory. I think we can keep trending higher.”

U.S. markets reopened after a three-day weekend that included the Good Friday holiday. London markets remained closed on Monday for Easter.

Economic recovery bodes well for higher fuel demand in the United States, the largest consumer of oil. Flagging demand has helped bolster U.S. crude oil stocks, which are currently well above the five-year average.

Drivers load gasoline at a local gas-station during a blackout in Santiago, March 14, 2010. REUTERS/Ivan Alvarado

ANALYSTS EXPECT LARGER SUPPLIES

Analysts polled by Reuters forecast weekly inventory from the American Petroleum Institute, due out on Tuesday, and data from the Energy Information Administration on Wednesday will show the 10th straight week of inventory gains.

Oil, natural gas and heating oil all rose sharply in a broad commodities market rally. U.S. equities moved higher, led by shares in energy companies .GSPE, as the Standard & Poor's 500 Index rose to an 18-month high.

The U.S. dollar weakened against a basket of foreign currencies, often an indication that investor funds are flowing away from safe haven assets and into those deemed riskier, such as commodities or equities.

OPEC members, including the world’s largest crude exporter Saudi Arabia, said last week at the International Energy Forum in Cancun, Mexico, that they favored an oil price in the $70 to $80 a barrel range. But OPEC, which pumps more than a third of the world’s oil, has no immediate plans to revise output targets and produce more crude even with oil near $85, a person familiar with Saudi oil policy told Reuters last week.

Crude prices also rose after reports that a South Korean supertanker was hijacked by Somali pirates off of East Africa over the weekend. The tanker, chartered by U.S. refiner Valero Corp., was carrying around 2 million barrels of Iraqi crude oil -- around 2.4 percent of daily world supply -- toward the U.S. Gulf Coast.

LITTLE RESISTANCE

Technical analysts, who follow the movement of prices on historical charts, have become more bullish and suggest the oil market could move higher in the next few weeks.

“Our take on crude oil prices in the short-term is that we likely will push higher from here,” said senior commodities analyst Edward Meir at brokers MF Global.

“Technically, there is very little resistance showing on the charts given the upside breakout evident.”