Oil prices fell toward $61 a barrel on Monday, shedding some of the previous session's gains, on growing risk aversion after North Korea said it had successfully conducted a nuclear test.

Still, prices hovered around a six-month high, as a weak U.S. dollar and expectations the Organization of the Petroleum Exporting Countries (OPEC) would keep its official production targets unchanged during its meeting on Thursday limited oil's losses.

U.S. crude futures for July delivery fell 32 cents to $61.35 a barrel by 0312 GMT (11:12 p.m. EDT on Sunday). The contract settled up 62 cents at $61.67 a barrel on Friday, boosted by data showing a big increase in Chinese demand, along with a weak dollar.

London Brent crude fell 23 cents to $60.55.

Risk appetite is being reversed across all markets on the North Korean nuclear test, which has raised uncertainties about which direction the nuclear problem will evolve to, said Michelle Kwek, an analyst at Informa Global Markets.

North Korea said it had successfully conducted a nuclear test on Monday, raising the explosive power and level of control of its nuclear device to a new level, its state media said.

For an analyst view of the nuclear test, click on

Asian stocks, including Japan's Nikkei and South Korea's Kospi, fell after the news, while the U.S. dollar edged up slightly and the yen rose as investors turned their focus to safe-haven assets.

Still, analysts said a weak dollar -- now hovering near its lowest level this year -- would continue to offer support to oil.

Oil prices rallied around 9.5 percent last week, boosted by a spate of U.S. refinery problems and unrest in major oil exporter Nigeria, and are nearly double their lows hit in December on hopes the economic recession is easing.

Saudi Arabian Oil Minister Ali al-Naimi said OPEC would probably stay the course when it meets this week as he forecast a pick-up in demand and prices eventually rising toward $75 a barrel.

Algeria's oil minister said OPEC was unlikely to cut output at its meeting next week amid a weak global economy, warning compliance with previous supply cuts had slipped in April and needed to be tightened first.

China wants to set up a 3 million tonnes reserve of oil products this year, which is practically impossible, a researcher at a think-tank run by the country's top oil refiner Sinopec Group, was quoted as saying on Sunday.

Crude oil speculators on the New York Mercantile Exchange steeply increased net long positions in the week to May 19, according to data from the U.S. Commodity Futures Trading Commission released on Friday.

(Editing by Ben Tan)

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