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LONDON (Reuters) - Oil rose on Monday, despite Chinese data showing a deepening slowdown in the world's biggest energy consumer, as investors focused on the possibility of more stimulus measures and other moves to try to revive economic growth.
China's factories have been hit by slowing orders, two major surveys showed on Monday, suggesting the slowdown in the world's No. 2 oil user could be worsening.
The figures prompted a new round of speculation that governments would act sooner rather than later to increase money market liquidity to encourage bank lending, a move that would almost certainly boost commodities and oil.
Trading volumes were limited, with U.S. financial markets closed for the Labor Day holiday.
Brent October futures traded up $1.21 to settle at $115.78 per barrel after jumping nearly $2 on Friday. U.S. crude oil futures, which were trading electronically for Tuesday settlement, gained 57 cents to trade at $97.04 a barrel. Electronic trade ended at 1:30 p.m. ET (1730 GMT), and will resume at 6 p.m. ET.
Both contracts rose more than 9 percent in August, driven by supply concerns and hopes for stimulus from the Federal Reserve.
"The Chinese data is very gloomy and suggests that the world economy is slowing," said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt.
"But the market impact is rather limited as it raises hopes of more economic stimulus measures," he said. "Hopeful of central bank measures, speculative financial investors are increasingly betting on rising prices."
China's official factory purchasing managers' index (PMI), one of the early indicators of the state of the economy, fell to a lower-than-expected 49.2 in August, the National Bureau of Statistics said on Saturday.
It was the first time since November 2011 that the number has fallen below 50, which separates expansion from contraction, and followed last week's flash PMI for August, which hit a nine-month low. Together, the two manufacturing surveys could strengthen the case for further policy steps to bolster growth.
U.S. and European data this week could throw light on central bank plans for monetary policy.
Traders are eyeing the European Central Bank's meeting on Thursday and U.S. non-farm payrolls data due on Friday.
Although the minutes of the last meeting of Fed policymakers suggested the central bank was leaning towards further stimulus to boost the economy, a keenly awaited speech on August 31 by Chairman Ben Bernanke offered no specifics.
Hopes for easing remained intact as Bernanke said stagnation in the U.S. labor market was a "grave concern", leading investors to expect that unemployment data due on Friday may provide the Fed with a trigger.
U.S. quantitative easing tends to be positive for commodities as it drives down the dollar and adds liquidity.
An ECB meeting on Thursday will be monitored closely as the magnitude of the euro zone's problem gives it the ability to derail markets across the globe.
Expectations are high after ECB Chairman Mario Draghi in July pledged to do whatever was necessary to preserve the euro, sparking hopes the central bank may announce details of a bond-buying plan this week.
Investors were also monitoring a debate about the release of strategic oil reserves to cool prices, a plan mooted by the United States and supported by Britain and France, but opposed by Germany and Italy.
In Norway, a last-minute wage deal between oil drill workers and their employers helped keep prices subdued by averting what would have been the second strike in two months.
In July, a 16-day strike by Norway's oil production workers shut 13 percent of production before the government stepped in.
Tension persisted between Israel and Iran in the Middle East, a critical source of crude supplies.
Israeli Prime Minister Benjamin Netanyahu on Sunday urged world powers to set a "clear red line" for Tehran's atomic program that would convince Iran they were determined to prevent it from obtaining nuclear arms.
His remarks suggested a growing impatience with Israel's main ally, the United States, and other countries that have been pressing him to give diplomacy and sanctions more time to work and hold off on any go-it-alone strike on Iran.
The White House on Monday denied an Israeli newspaper report that accused Washington of secretly negotiating with Tehran to keep the United States out of a future Israel-Iran war.
Additional reporting by Ramya Venugopal in Singapore; editing by Keiron Henderson and Leslie Gevirtz