Oil climbed above $81 a barrel on Monday, extending last week's two percent rise, as weakness in the dollar and geopolitical tensions continued to provide support, despite doubts about the strength of the U.S. economy.

Analysts said the dollar, which is slipping towards a 15-year low against the yen, could continue to bolster oil prices, along with geopolitical tensions in the Middle East and the Korean peninsula.

Prices closed above $80 a barrel last week for the first time since May.

"I think technically the market has been on an uptrend for the last couple of weeks, and that's sustained," said Tony Nunan, a risk manager with Mitsubishi Corp in Tokyo. "The dollar's weakening is part of why crude has been strong."

A weak dollar tends to boost commodities priced in the greenback as they become cheaper for other currency holders.

U.S. crude for September delivery rose 74 cents to $81.44 a barrel by 1119 GMT. The contract fell $1.31 or 1.6 percent to settle at $80.70 a barrel on Friday, but ended the week 2.2 percent higher.

London Brent crude gained 84 cents to $81.00.

Nunan said U.S. crude may try to scale a recent high of $82.97 hit earlier this month, but the slow economic recovery in the United States could keep a lid on the market for now.

The latest U.S. employment figures on Friday showed the world's largest economy shed 131,000 jobs in July, more than double the drop forecast by the market.

RISING TENSIONS

Geopolitical tensions in Korea and Iran could provide some of the impetus for a move higher, analysts said.

On Monday, North Korea fired artillery rounds into the sea off its west coast, a South Korean military official said, heightening tension on the divided peninsula.

IHS Global Insight analyst Simon Wardell said the incident would likely be more supportive for oil than equity markets, which could take fright at the prospect of a military confrontation.

"The Korean incident might cause equity markets to wobble but I'd expect it to be more supportive for oil," IHS Global Insight analyst Simon Wardell said.

Analysts at Australia & New Zealand Bank said reports of escalating tensions in Iran were also supporting oil prices.

Iran showed off four new domestically made small submarines on Sunday that it said would bolster its defence capability as it vows to confront any military threat from countries opposed to its nuclear programme.

Investors will watch China's trade and industrial output data due mid-week to gauge how its economy is faring, with the Ministry of Commerce having warned that the second half of the year would be a "grim" period for its exporters.

Rising Chinese oil demand has been one of the main factors pushing prices higher, analysts said, but there are concerns its rate of economic growth could slow.

In a sign that many investors remain bullish on oil prices, open interest positions remained heavy at the September $85, $90 and $95 call options on Friday, while money managers also increased net long crude oil positions on the New York Mercantile Exchange in the week through Aug. 3.