Oil prices rallied by 2 percent to $75 a barrel on Monday as renewed optimism about the global recovery boosted the outlook for fuel demand and sent Asian and European stock markets to their highest level in four weeks.

U.S. crude for July rose to a high of $75.51 a barrel and was up $1.57 at $75.35 a barrel at 0909 GMT, still down 13 percent from a 19-month high above $87 in early May.

ICE Brent gained $1.40 to $75.75.

The euro rose to a one-week high against the dollar, which was down by about 1 percent against a basket of currencies .DXY. A weaker dollar tends to boost the price of commodities priced in the U.S. currency as they become more expensive for other currency holders.

Some of the fears about the European debt crisis are easing, said Tony Nunan, a risk manager with Mitsubishi Corp.

If the dollar is falling, it means that people are more relaxed to take on risk. People have believed for a long time that the second half (of the year) will be better than the first half, Nunan said.

Euro zone industrial output in April surged year-on-year more than in any month in almost two decades, data showed on Monday, in a sign economic recovery could be gathering pace.

The European Union's statistics office Eurostat said industrial production in the 16 countries using the euro rose 0.8 percent month-on-month for a 9.5 percent year-on-year gain.

European leaders will meet on Thursday to set out proposals to convince financial markets they can contain a debt crisis by agreeing to tighten economic policy coordination and strengthen budget discipline.

Oil prices posted just their second weekly gain since early May last week, with U.S. crude prices rising by more than 3 percent as strong Chinese export data signaled global growth remains robust and healthy industrial energy demand in the world's second largest oil consumer.

OPTIMISM CARRIES ON

Oil consumption in the U.S. is recovering, helped by the seasonal summer peak in gasoline use. The nation's crude inventories fell more than expected in the last week of June, trimming a surplus that has prevailed for almost two years.

Crude fell to below $65 a barrel in mid-May as the European debt crisis unfolded.

Money-managers raised the number of bets crude prices will rise last week, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday, marking the first time long positions have increased since the start of the euro zone crisis.

U.S. crude would have to settle above $76, a level reached in intraday trade last week for the first time in a month, for prices to extend their upward march, Nunan said, based on technical chart analysis.

While demand is rising, U.S. supplies could be tightened by BP's Gulf of Mexico oil spill by the end of the summer, according to JP Morgan, following U.S. President Barack Obama's decision to delay new offshore drilling.

With the U.S. drilling ban likely to hit supplies from the third quarter onwards, and demand expected to rise seasonally between now and August, we feel that seasonality and fundamentals are moving toward a price rebound, JP Morgan analyst Lawrence Eagles said in a report.

Overall, while risks remain, we believe that the oil market will start to tighten up over the coming months.

(Additional reporting by Alejandro Barbajosa in Singapore; Editing by Alison Birrane)

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