NEW YORK (Reuters) - Oil prices climbed more than $1 to above $78 a barrel yesterday, lifted by a weaker dollar and solid manufacturing data from China that raised hope of a rebound in energy demand.

US crude for January delivery rose $1.09 to settle at $78.37 a barrel. In London, Brent crude added 88 cents to settle at $79.35.

Business surveys in China showed the world's second-largest energy consumer has largely recovered from the global economic downturn, laying the foundation for solid expansion in 2010.

"China's manufacturing data was supportive and the weak dollar is also supporting commodities," said Tom Bentz, analyst at BNP Paribas Commodity Futures in New York.

Investors have looked to wider economic data in recent months for signs of economic recovery and a potential rebound in energy demand.

A weaker dollar also provided support as waning worries about Dubai's debt helped dim the US currency's safe-haven appeal. A weaker dollar makes dollar-denominated commodities like crude cheaper for holders of other currencies and tends to support prices.

The catalyst for the easing concern about Dubai's debt was an announcement on Monday from Dubai World, center of the debt storm, that its planned restructuring of some units involved $26 billion in debt.

"It looks like sentiment, primarily relief from Dubai, because overall supply and demand has not changed," Joseph Arsenio, managing director at Arsenio Capital Management in Larkspur, California, said of crude's rise.

Oil has rallied from below $33 last December but has held in a narrow band of $70 to $82 over the past two months. Some analysts see little chance that prices would push above the range, given ample supplies and little sign of strengthening demand.

"We see little impetus for a break to the upside, even if economic indicators surprise to the upside this week," Credit Suisse analysts said in a research note. "The inventory overhang in the diesel and heating oil markets should prevent prices from breaking higher for the time being."