Oil prices lose traction

NEW YORK (CNNMoney.com) -- Oil retreated Monday, giving back earlier gains, as the U.S. dollar strengthened and investors focused on a weaker-than-expected manufacturing report.

What prices are doing: Light, sweet crude for April delivery fell 96 cents, or 1.2%, to settle at $79.66 a barrel.

What's moving the market: Prices retreated after making a run near $81 a barrel as the dollar rallied against rival currencies.

The dollar index (DXY), which gauges the greenback against a basket of other currencies, was up 0.6% to 80.91. A stronger dollar typically weighs on prices for commodities that are priced in the U.S. currency, such as crude oil.

Oil prices were also pressured by an industry report that showed U.S. manufacturing activity expanded in February at a slower rate than the month before.

The Institute for Supply Management's manufacturing index slipped to 56.5 from 58.4 in January. It was the seventh consecutive month that the index remained above the level indicating expansion, but the decline was larger than expected.

Economists surveyed by Briefing.com had expected the measure to fall slightly to 58.0.

In other economic news, government data showed that personal income edged up 0.1% in January, while spending by individuals rose 0.5%, up for a fourth straight month.

Meanwhile, the decline came despite a rally on Wall Street. Stocks posted strong gains as investors welcomed a spate of corporate merger announcements and signs that a Greek bailout package is in the works.

What analysts are saying: "The market tried to be optimistic about economic data," said Phil Flynn, senior market analyst at PFG Best. "But it couldn't get past the fact that the dollar continues to be strong and the manufacturing numbers were weak."

Flynn said oil prices had been supported earlier by government figures released last week that showed the U.S. economy grew at an annual rate of 5.9% during the fourth quarter. That was stronger than the previously reported 5.7% growth rate.

"We had a lot of momentum off of the GDP figures last week," Flynn said. "But the market brushed over the fact that the energy demand is weak."

The report showed that consumption of gasoline and other energy products declined slightly in the quarter, while more than half the overall economic growth was due to the fact that businesses were no longer slashing inventories the way they did in the first three quarters of the year.