Oil prices slipped below $71 a barrel on Monday, as the dollar's strength and worries about high oil inventories helped counter earlier gains on the back of rising Asian stocks amid hopes for an economic recovery.

Despite losing ground against the yen, the greenback held most of its gains against a basket of currencies after its jump of more than 1 percent on Friday. Japan's Nikkei <.N225> closed up 1.1 percent, tracking Friday's Wall Street gains.

U.S. crude fell 31 cents to $70.62 a barrel by 2:54 a.m. EDT, retracing earlier losses. London Brent crude fell 29 cents to $73.30 a barrel.

Prices rose more than 2 percent last week amid generally upbeat earnings and economic indicators that raised hopes of higher fuel demand, touching a five-week high on Friday. But they closed the day down more than $1, the biggest decline since July 29, after the dollar's unexpected surge on positive jobs data.

U.S. employers cut 247,000 jobs in July, far fewer than expected and the least in any month since last August, according to a government report.

The U.S. payrolls data would have been supportive for crude, but investors are now focusing on the strength in the U.S. dollar, said David Moore, a commodities analyst at the Commonwealth Bank of Australia.

While we'll probably see another bunch of positive Chinese data over the next few days, the story remains that oil supplies are quite ample at the moment and that could be a key downside risk for oil prices in the near-term.

The dollar lost ground to the yen on Monday as Japanese exporters and short-term speculators took advantage of its jump the previous session on U.S. jobs data. The U.S. dollar index <.DXY> dipped 0.2 percent.

Oil prices are not bad at current levels for the Organization of Petroleum Exporting Countries (OPEC), the head of the group said on Sunday, reinforcing expectations that the cartel was unlikely to cut output at a meeting next month.

STOCKS WEIGH

With little in the way of fresh data due on Monday, traders will be focusing this week on Tuesday's raft of Chinese oil import and production figures, which could show a new record high for crude imports as refiners ramp up, as well as global oil demand revisions from the three main official energy bodies.

U.S. crude oil inventories could also extend their recent rise as refiners shut for maintenance, some analysts warned.

More gains in U.S. stocks -- particularly in the mid-continent area -- may keep pressure on the unusually wide premium on the European Brent crude oil contract over the U.S. grade, which has hovered around minus $3 since late July, the widest since two unprecedented declines in January and February.

But other analysts saw the trend reversing soon. The spread dipped about 11 cents to -$2.73 a barrel on Monday.

We believe the dislocation between WTI and Brent that has been driven by a rapid build in Cushing is not sustainable as we expect rising runs and a shut arb to correct the imbalances, Goldman Sachs said in a report. We expect refinery runs to pick up in the coming weeks owing to improved....margins and to unplanned outages in refineries in the area coming to an end.

The number of crude oil speculators betting on further gains in New York Mercantile Exchange crude oil prices jumped in the week to August 4, with net length rising from under 5,000 lots to over 34,000 lots, regulatory data showed.

(Additional reporting by Osamu Tsukimori in Tokyo)

(Reporting by Fayen Wong and Jonathan Leff in Singapore; Editing by Clarence Fernandez)

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