* Moody's Greece downgrade pulls oil, euro, equities lower
* Euro zone industrial output April rise lifted oil early
* U.S. says storm could form in the Atlantic, supports oil
* Coming up: July Brent contract expiry on Tuesday (Recasts, updates prices, market activity)
By Robert Gibbons
NEW YORK, June 14 (Reuters) - U.S. oil prices rose on Monday, but pared gains after Greece's bonds were downgraded, cutting into optimism about global economic recovery that had fueled the earlier rise.
"Crude failed near $76.00 and spent much of the morning trading sideways. But it began to drift lower, accelerated by the Moody's downgrade of Greece. All markets backed off earlier highs," said Tom Bentz, broker at BNP Paribas Commodity Futures Inc in New York.
U.S. crude for July <CLc1> rose $1.34, or 1.82 percent, to settle at $75.12 a barrel, having reached a $75.99 intraday high, which still left prices well below a 19-month high above $87 in early May.
At 2:37 p.m. EDT (1837 GMT), London's ICE Brent <LCOc1> for July delivery rose 76 cents to $75.11 a barrel. The Brent July contract expires on Tuesday.
Moody's Investors Service on Monday downgraded Greece government bond ratings into junk territory, citing the risks in the euro zone/IMF rescue package for the debt-laden country. [
]Oil and equities were lifted earlier by data showing euro zone industrial production in April surged year-on-year more than in any month in almost two decades, giving investors renewed confidence that the global economic recovery could be gathering pace. [
]The European Union's statistics office, Eurostat, said industrial output in the 16 countries using the euro rose 0.8 percent month-on-month for a 9.5 percent year-on-year gain.
After the Greece bond downgrade, the euro pared gains against the dollar on rekindled fears about excessive debt levels in several euro zone countries. [
] The dollar index <.DXY> remained weaker against a basket of currencies.A weaker U.S. dollar tends to boost the price of dollar-priced commodities as it lowers the price to holders of other currencies and reduces the value of the currency oil producers receive for their product.
U.S. stocks trimmed their gains after the news on the Greece downgrade. [
] Earlier, stocks had rallied around the world, fueled by the strong European industrial data. [ ]European leaders will meet on Thursday to try to convince financial markets that Europe's debt crisis can be contained through improved economic policy coordination and budget discipline. [
]Though oil prices slipped on Friday, they managed to post a gain for the week, with U.S. crude prices up more than 3 percent on lift from strong Chinese export data and lower crude stockpiles [
] reported by the government.The U.S. National Hurricane Center said on Monday that a low-pressure system in the central Atlantic Ocean had a 60 percent chance of developing into a tropical cyclone over the next day or two, adding to support for oil. [
]OPTIMISM ABOUT DEMAND
Oil traders and analysts have been eyeing signs U.S. demand is showing better signs of recovery as the summer driving season heats up and distillate use improves.
After reaching a 19-month high above $87 a barrel in early May, crude futures fell below $65 a barrel later in the month as the European debt crisis unfolded.
Money managers raised their net long positions for crude oil in the week to June 8, the U.S. Commodity Futures Trading Commission said on Friday, marking the first time the net long positions increased since the start of the euro zone crisis. [
](Graphic http://graphics.thomsonreuters.com/10/CFTC_Crude110610.gif)
For prices to extend their upward march, U.S. crude would have to settle above $76, a level reached in intraday trade last week for the first time in a month, according to Tony Nunan, a risk manager with Mitsubishi Corp, based on technical chart analysis.
Oil analysts are also anticipating U.S. crude oil output will be tightened from offshore drilling delays in reaction to BP's Gulf of Mexico oil spill. [
]"With the U.S. drilling ban likely to hit supplies from the third quarter onward and demand expected to rise seasonally between now and August, we feel that seasonality and fundamentals are moving towards a price rebound," J.P. Morgan analyst Lawrence Eagles said in a report. (Additional reporting by David Sheppard in London, Alejandro Barbajosa in Singapore and Gene Ramos in New York; Editing by Sofina Mirza-Reid)