U.S. oil fell below $85 a barrel on Monday as Greece's festering debt crisis pushed the U.S. dollar up and as the oil market girded for further growth to inventories in the United States, the world's top energy consumer.

U.S. crude for June delivery fell 36 cents to $84.76 a barrel by 11:04 am EST (1504 GMT), after settling up $1.42 on Friday.

The front-month contract for London ICE Brent crude slipped 12 cents to $87.13, after rising to $87.75 earlier, the highest price since early October 2008.

We're really talking about the potential for financially motivated investors to enter or leave the oil market. To the extent that they have direct exposures to Greek debt... I think there's some nervousness that we might see a cycle of long-liquidation out of the oil market, said Tim Evans, energy analyst for Citi Futures Perspective in New York.

Surplus inventories and weak physical demand in the U.S., the world's top oil consumer, also weighed on prices, Evans said.

A Reuters poll of analysts on Monday forecast that crude and refined product inventories continued to rise last week.

The U.S. dollar <.DXY> firmed against a basket of currencies and the euro, pressuring oil prices. As the dollar strengthens, it makes commodities like oil more expensive for buyers holding other currencies.

Uncertainty over proposals to curb speculation in energy markets could add to oil price volatility this week, as the Commodity Futures Trading Commission's public comment period ends on Monday.

Some of the biggest players in U.S. energy markets have told the CFTC that its plans to reduce speculation is misguided and will drive investors to overseas and unregulated markets.

The position limit proposal stems from a spike in oil futures prices to a record of more than $147 a barrel in 2008.

A Reuters poll on Monday showed analysts expect U.S. crude oil to average $81.06 a barrel in 2010. They cited growing demand in emerging economies, especially China.

SIGNS OF RECOVERY

The drop in oil prices on Monday came after strong gains last week. Prices on Friday ended above $85 a barrel, the highest in a week as robust U.S. economic data boosted expectations of a sustained recovery.

Last Friday, a government report showed sales of newly built U.S. single-family homes rebounded in March to touch their highest level in eight months, as buyers took advantage of a homebuyer tax credit.

New orders for durable U.S. manufactured goods, excluding transportation, also posted the largest gain in over two years in March according to data also released Friday.

Analysts said Friday's data, coupled with other reports out this month, showed improving U.S. domestic demand, indicating economic recovery in the world's top oil consumer.

Traders will look for further clues on economic recovery from the U.S. April consumer confidence data on Tuesday, as well as the outcome of the Federal Reserve's two-day, policy-setting meeting starting the same day.

Analysts widely expect the Fed to keep interest rates near zero and stick to its pledge of low borrowing costs for an extended period to foster U.S. recovery.

(Additional reporting by Gene Ramos in New York, Joe Brock in London, Jennifer Tan, Alejandro Barbajosa and Wang Tao in Singapore; Editing by David Gregorio)

China Energy