Oil rises 2 pct on U.S. factory data, gold surge

By Joshua Schneyer

NEW YORK (Reuters) - Oil rose nearly 2 percent to above $79 a barrel on Tuesday after data showed U.S. factory orders in September expanded at a quicker pace than expected, signaling potential for more fuel demand in the world's biggest energy consumer.

Factory orders rose 0.9 percent in September, surpassing Wall Street analyst expectations, and factory inventories fell.

"Factory orders are a positive sign. This helps the broad sentiment that an economic recovery will eventually boost fuel demand and send prices higher," said Gene McGillian of Tradition Energy in Stamford, Connecticut.

Crude oil rose along with gold, which reached a record above $1,084 an ounce. India's Central Bank bought 200 tons of gold from the International Monetary Fund on Monday, in a sale signaling more commodities demand and reassuring investors the IMF was unlikely to sell large volumes of gold on the open market.

"Some people are viewing the rally in gold as a reason to push crude up," said Tim Evans, energy analyst at Citi Futures Perspective in New York.

U.S. crude for December rose $1.47 a barrel to settle at $79.60. London Brent crude futures rose $1.56 to settle at $77.81 a barrel.

U.S. retail gasoline demand last week rose 3.3 percent from a year ago , according to a MasterCard SpendingPulse report. Demand was down 0.4 percent from the previous week, according to the weekly report.

Oil traders were awaiting weekly U.S. oil inventory data. Analysts expect that U.S. crude inventories rose by 1.4 million barrels last week, but stocks of distillates like heating oil and diesel were expected to fall by 1 million barrels, according to the latest Reuters poll. <EIA/S>