NEW YORK - Oil prices rose slightly on Monday as the weak dollar provided support, outweighing concerns over debt-laden Dubai and its impact on the global economy.

U.S. light crude oil futures for January were up 51 cents at $76.56 a barrel by 1:29 p.m. EST (1829 GMT). In London, Brent crude gained 68 cents to $77.86.

Signs of a sluggish recovery in oil demand and high fuel stockpiles in the United States have kept a lid on crude prices, which are set for a fall of around 0.5 percent this month, their first decline since July.

Investors eyed the debt crisis in Dubai to see the effect on the wider global economy.

There is still uncertainty on how the Dubai situation will play out, said Phil Flynn, analyst at PFGBest Research in Chicago.

Financial markets shuddered last week after Dubai said it would ask creditors of state-owned Dubai World and Nakheel, the builder of its palm-shaped islands, for a standstill pact as a first step toward restructuring billions of dollars of debt.

But confirmation from Abu Dhabi that it would extend some help to Dubai helped calm some market concerns.

U.S. stocks fell as investors worried that the holiday shopping season might have gotten off to a tepid start. Asian stocks made a tentative recovery after last week's steep sell-off.

SENTIMENT ON EDGE

The dollar fell against the euro and most major currencies after the United Arab Emirates central bank promised additional liquidity to local banks.

A weak dollar makes dollar-denominated commodities like crude less expensive for holders of other currencies and tends to support prices.

The dollar and developments in Dubai will be key factors in driving the direction of oil prices this week, analysts said.

Oil is up more than 70 percent this year, as investors looked to signs of a recovering world economy and a potential rebound in fuel demand.

Sentiment is on edge and analysts said there could be another round of corrections in equities and commodities markets if Dubai were not able to resolve its debt problems.

Eugen Weinberg, an analyst at Commerzbank, said the oil market's response to Dubai's troubles could be a pointer to underlying sentiment. If oil prices fell, they could slip a lot further, possibly even to below $70 per barrel.

It's an important day, especially for oil, but also for metals. We could see buying in the dips and, should the markets move higher, sentiment could improve, Weinberg said.

Mike Wittner, global head of oil research at French bank Societe Generale, said Dubai was raising risk aversion.

The financial markets are being fairly rational. At this time of year investors tend to reduce risk anyway, and the problems in Dubai are hastening that process, he said.

Implied volatility in U.S. crude futures, a measure of risk perception based on options, rose 15 percent on Friday, the steepest jump since October 2008.

In Europe, where the European Central Bank meets this week amid expectations it will announce plans to exit its super-loose monetary policy, implied stock market volatility has soared.

(Additional reporting by Robert Gibbons and Gene Ramos in New York and Christopher Johnson in London; Editing by Marguerita Choy)

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