Oil hovered above $88 a barrel on Monday, ahead of an expected cut in interest rates this week by the U.S. Federal Reserve to revive economic growth in top oil consumer the United States.

U.S. crude was up 35 cents a barrel at $88.63 by 8:30 a.m. EST. London Brent crude was up 25 cents at $88.89 a barrel.

Better-than-expected U.S. employment data on Friday reduced the likelihood of an aggressive 50 basis point interest rate cut by the Federal Reserve on Tuesday.

Markets are, as a result, pricing in a quarter-point cut, a factor that helped support the dollar near a one-month high against the yen.

The dollar remained on a firm footing, but slipped from its one-month high after a $10 billion writedown by Swiss bank UBS turned the spotlight back on to problems in the financial sector caused by bad mortgage loans in the United States.

A rally in the U.S. dollar last week helped depress oil prices, which fell to their lowest in six weeks after coming close to breaking the $100 mark in November.

The weak dollar, concerns over falling crude oil supplies ahead of winter and speculative inflows had contributed to oil's rise to a record $99.29 on November 21.

But the market has been moving sideways since the Organization of the Petroleum Exporting Countries last week agreed to leave its output levels unchanged, despite calls from consuming nations for more oil to meet winter demand.

OPEC rolled over quotas as we expected; this was constructive, as OPEC demonstrated its intent to continue to tightly manage its crude supply, Mike Wittner, oil analyst at Societe Generale said in a research note.

However, macro concerns about weakening economic and oil demand growth in the U.S. and elsewhere in the OECD -- concerns that are shared by OPEC and the broader oil markets -- offset the rollover and weighed on prices.

Some energy experts have said OPEC's output levels are not enough to stem sliding crude inventories and could trigger a crunch when heating demand peaks this winter.

Stockpiles of crude oil in top oil consumer the United States, for example, dropped last week to their lowest since early 2005.

Market speculators have pared their bullish bets as oil prices fall further from their record high and as the end of the year approaches.

Non-commercial investors cut their net long positions in the New York Mercantile Exchange (NYMEX) crude oil futures contract by 12,000 lots to 47,072 lots in the week to December 4.

The investment flow data remains negative, said Olivier Jakob, of oil consultancy Petromatrix. As we get closer to the Christmas holiday low liquidity with still a high volatility, we should expect to see further squaring of positions over the next ten days.

(Reporting by Jane Merriman in London and Jonathan Leff in Singapore, editing by James Jukwey)

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