Crude oil futures advanced Tuesday as fears over a sharp growth slowdown in the world’s second largest economy eased slightly after a report showed that Chinese factory activity in July grew at its fastest pace in five months.

Light sweet crude for September delivery gained 0.54 percent or 48 cents to $88.62 a barrel in electronic trading on the New York Mercantile Exchange during European trading hours. Brent crude oil futures for September delivery rose 0.65 percent or 67 cents to $103.93 a barrel on the ICE futures exchange in London.

The HSBC Flash Purchasing Managers Index (PMI), a measure of the nation-wide manufacturing, climbed to 49.5 in July, its highest level since February, compared to 48.2 in June. However, the reading is still below the 50 level, signifying contracting economic activity.

Oil futures tumbled on Monday as renewed concerns over the euro zone debt crisis weighed on the financial markets and commodities. Light sweet crude for the September delivery plunged 4.2 percent and settled at $88.14 a barrel on the New York Mercantile Exchange while Brent crude oil plunged $3.54 to settle at $103.29 a barrel.

Spanish benchmark 10-year bond yields soared to 7.5 percent Monday as investors worried that a banking sector bailout and an empowerment of the EU’s bailout funds will not solve Spain’s underlying economic problems, and a full sovereign bailout was inevitable sometime in the future.

Adding to the downside, Moody's Investors Service said Monday that it was changing its outlook for Germany, the Netherlands and Luxembourg to negative from stable. It cited the increasing chances of Greece leaving the euro currency and the need for more support required for Spain and Italy as the reasons for the change in outlook.

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