Oil leaps 5 percent as dollar rally stalls, U.S. rigs fall

NEW YORK (Reuters) - Oil prices jumped almost 5 percent on Friday, their biggest rally in a month and a half, as a steady U.S. dollar and a bigger than expected drop in oil rigs set off a renewed rush of bullish bets.

Brent crude settled at $65.56 a barrel, up $2.98, or 4.8 percent, on the day. It was flat on the week, while for the month, it fell 2 percent.

U.S. crude ended at $60.30, $2.62, or 4.5 percent, higher on the day and up 1 percent for both the week and month.

U.S. crude has risen by as much as $4 a barrel after hitting a one-month low just a day ago, locking in a record 11th weekly gain propelled both by declining domestic stockpiles and rapidly shifting sentiment ahead of next week's OPEC meeting, where the group is expected to maintain its production.

Oil bulls were also enthused by Friday's rig count data from Baker Hughes, which showed U.S. drillers again reducing the number of rigs in operation this week despite speculation that they would add to them. A lower rig count signals potentially lower production in the future.

Tensions in the Middle East after the Islamic State claimed responsibility for a mosque bombing in Saudi Arabia that killed three people added to market support.

"The dollar's stalling provided the spark for today, and coupled with the bullish crude draws data, the encouraging rig count numbers and Middle East worries, the market just went into a frenzy," said John Kilduff, partner at New York energy hedge fund Again Capital.

The dollar edged lower against a basket of major currencies on Friday, after having risen 2.5 percent this month.

(Additional reporting by Christopher Johnson in London and Henning Gloystein in Singapore; Editing by Marguerita Choy; and Peter Galloway)