Brent crude futures dipped Tuesday after rising nearly $2 a day earlier, as soft U.S. economic data renewed fears of weaker oil demand from the world's top consumer and a rise in the dollar spurred selling.

Brent crude for September fell 65 cents to $109.26 by 1:50 a.m. EDT. U.S. crude was down 62 cents at $87.26 a barrel

In the latest dispiriting news Monday, manufacturing in the New York area contracted for the third straight month in August, data showed, tempering any lingering hopes for a rebound.

The survey is one of the earliest regional guideposts to U.S. factory conditions, and analysts said it boded poorly for the national survey due at the beginning of September.

Other data released Monday showed the U.S. housing sector remained weak with a gauge of homebuilder sentiment stuck at historic lows.

"The manufacturing data took quite a hit, and that could account for the weakness," said Ben Le Brun, CMC Markets analyst in Sydney, Australia. "But it seems fears of the worst-case scenario for the global economy has receded. We're going to see weaker growth, but growth nonetheless."

Oil prices were also pushed lower by a stronger dollar, which makes commodities priced in the greenback more expensive for holders of other currencies.

The U.S. dollar was trading up 0.12 percent against a basket of currencies. The greenback had fallen to a near three-week low against the euro on Monday.

The market will be watching for a slew of U.S. economic reports that come out this week, including housing starts and industrial production data Tuesday, for clues on the health of the world's biggest economy.

Concerns over the U.S. recovery and the euro zone crisis have dragged down oil prices this month. Brent had surged Monday as hopes for a resolution to Europe's issues rose ahead of a Tuesday meeting between French and German leaders.

The World Bank also called for national governments to seek long-term debt curbs on Tuesday to solve the current sovereign debt crises in Europe and the United States, but said it was too early for special action by the Group of 20 nations.

Brent could move up to $111.30 a barrel after a retreat to $108.20, while a rebound for U.S. oil seems to be stronger than expected and it may continue to zigzag up toward $90 per barrel, Reuters technical analyst Wang Tao said.

The shutdown of a North Sea oil well at a Royal Dutch Shell Plc (RDSa.L) field after an oil leak looks unlikely to affect supplies significantly from the home of the Brent oil benchmark, oil traders said Monday.

In the U.S., crude oil stockpiles are expected to have fallen for a second straight week due to lower imports, a preliminary Reuters poll showed on Monday ahead of weekly inventory data.

The loss of around 1.6 million barrels per day of production in Libya since the start of the uprising in February and threats to the oil terminal in Brega continue to elevate prices.

"We continue to believe that the return of Libyan crude supplies to the market will be seen in 2012 and as such any sell-off associated with headlines of a regime change in the country provide consumers with a good hedging opportunity," said analysts at J.P. Morgan in a report on Monday.

(Editing by Himani Sarkar)

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