Oil edged up on Tuesday in choppy trading as signs of an improving manufacturing sector in China lent support while weak euro-zone data and the region's spreading debt crisis limited gains for crude futures.
The gains came a day after Brent dropped more than 3 percent and U.S. crude slumped 4 percent -- the second straight lower settlements for both contracts.
China's manufacturing output in July grew at its fastest pace in nine months, putting the HSBC Flash China manufacturing purchasing managers index (PMI) up at 49.5 in July, close to the 50 level that divides expansion from contraction.
The rise to the highest reading since February indicated improvement yet kept the level below 50, keeping in play the possibility of more government actions to boost the economy in the world's No. 2 oil consumer.
Nagging weakness in Europe limited gains for oil prices. Business surveys showed the euro zone's private sector shrank in July for a sixth month, as manufacturing wilted and Germany's private sector shrank for the third straight month.
Oil prices "are finding support from the preliminary Purchasing Managers' Index for the manufacturing sector in China ... pointing to growing economic activity in the second-largest oil consumer country," said a Commerzbank research note.
"The preliminary purchasing managers' indices from the eurozone, on the other hand, remain persistently at recession level and are thus likely to counter any stronger price recovery."
Brent September crude managed a 16-cent gain to settle at $103.42 a barrel, having swung from $102.53 to $104.48, inside Monday's trading range.
U.S. September crude rose 36 cents to settle at $88.50 a barrel, having traded from $87.43 to $89.09, with only the day's low getting outside of Monday's trading range.
Total crude trading volumes remained well below both 30-day and 250-day averages for Brent and U.S. crude.
Brent and U.S. crude last week posted weekly gains of more than 4 percent, even with Friday's losses as Spain's debt problems helped halt a string of seven higher oil settlements.
The sharp drops on Monday resulted from concerns about Europe on indications Spain may need more help keeping its banks afloat.
Spain on Tuesday paid the second highest yield on short-term debt since the euro's birth, another sign of a growing belief that the country will need a full sovereign bailout.
The euro fell to a two-year low against the U.S. dollar and the dollar index strengthened, helping to check dollar-denominated oil's intraday rallies.
Violence in Syria, tensions between Iran and the West over Tehran's nuclear program, and North Sea production disruptions provided most of the lift for oil prices during the seven-session rally, according to analysts and traders.
U.S. OIL INVENTORIES
Oil investors awaited weekly reports on U.S. oil inventories, with industry group the American Petroleum Institute's report due at 4:30 p.m. EDT (2030 GMT) on Tuesday.
U.S. crude oil inventories are expected to have fallen 700,000 barrels, with distillate stocks having risen 1.1 million barrels and gasoline stocks slipping 600,000 barrels, a Reuters poll showed on Tuesday.
U.S. gasoline demand continued to lag the year-ago period and fell versus the previous two-week period, a MasterCard report said.
Gasoline futures slumped more than nearly 6 cents on Tuesday, while U.S. heating oil, the benchmark distillate, posted a half-cent gain.
Some traders and analysts attributed the moves in products futures to players selling the gasoline and moving to heating oil ahead of the August futures contract expirations on July 31.
Also noted was a brief fire at a Midwest refinery that sent Chicago cash ultra-low sulfur diesel differentials up 5-and-1/2 cents.
MIDDLE EAST TURMOIL
After a week of battles between President Bashar al-Assad's forces and rebels in Damascus, fighting intensified in Aleppo, a more populous commercial city that had seemed immune to Syria's 16-month-old upheaval.
"The risks of escalation of the conflict in Syria, we think, will continue to limit the extent of any bearish sentiment," ANZ analysts said in a note on Tuesday.
Moderating recent threats from Iranian officials about shutting a vital oil shipping lane, a military commander was quoted on Monday as saying Iran would not close the Strait of Hormuz as long as it was able to use the lane itself.
European Union and Iranian diplomats were slated to meet on Tuesday in Istanbul for a second round of technical-level talks on Iran's nuclear program.