Dollar reverses after earlier gains on North Korea
Euro zone worries vs prospect of China soft landing
Coming up: US Dec NAHB housing market; 1500 GMT (Recasts, updates throughout, previously SINGAPORE)
By Zaida Espana
LONDON, Dec 19 (Reuters) - Oil prices rose on Monday, reversing earlier losses as the dollar reversed direction after gains made earlier in the day on news of the death of North Korean leader Kim Jong-il.
Ongoing concerns that the euro zone debt crisis will weaken demand kept a lid on prices, however.
Brent crude futures rose by 85 cents to $104.20 a barrel by 1022 GMT. Last week the front-month contract fell by 4.85 percent, its biggest percentage drop since the week to Nov. 18.
U.S. crude futures were 58 cents firmer at $94.11 a barrel. The benchmark lost 5.9 percent in the previous week.
"There was some ovenight pressure in tandem with the Asian stocks down on the death of Kim Jong-il, but I am not sure that the oil markets will maintain much of a North Korea risk," Petromatrix's Olivier Jakob said.
Sentiment softened after Fitch Ratings warned on Friday it might downgrade France and six other euro zone countries, saying a comprehensive solution to the region's debt crisis was beyond reach.
"The market is still concerned that what's going on in Europe will spread to China, the biggest centre for oil demand growth," said Gordon Kwan, head of energy research at Mirae Asset Management in Hong Kong.
Both benchmarks fell by almost a dollar earlier after investors drove up the greenback on news that North Korean leader Kim Jong-il had died, sparking immediate concerns over who is in control of the reclusive state and its nuclear programme.
A stronger greenback makes dollar-denominated assets such as oil more expensive when purchased in other currencies.
"In light of uncertainties about what would follow after his death and what implications it would have on Asia, the initial reaction is to seek a safe-haven in the dollar," said Takao Hattori, an analyst with Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
Later the dollar index turned slightly negative.
CHINA SUPPORTS
Oil received support from fresh signs that China would be able to steer its economy into a moderate slowdown.
"China has enough tools to provide more liquidity and avoid a hard landing, which will be bullish for oil prices," said Kwan.
China's housing inflation hit its lowest level this year in November, the latest sign that Beijing's efforts to fight rising prices are paying off as it steadily eases monetary policy to ensure a soft landing.
In addition, protests in a western oil region of Kazakhstan, together with political vacuum left by the United States in Iraq lent support to prices.
IRAN WATCH
Market participants will be watching events in Iran this week on the possibility that sanctions over Tehran's nuclear program will choke off supplies from the world's fifth-largest crude oil exporter.
Indian companies have begun talks with alternative suppliers to slowly replace Iranian oil, and South Korea has set new sanctions on Tehran, banning fresh investment in its oil and gas sectors and blacklisting additional Iranian firms and personnel.
The threat of a major supply disruption from OPEC's second-biggest producer has helped support oil prices in recent weeks. (Additional reporting by Francis Kan in Singapore, editing by Jane Baird)
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