Oil's gains were choppy with traders torn between a slightly stronger stock market and the US dollar, which edged up after falling to a three-month low versus the euro on Friday, was making crude oil a more attractive investment.

US crude for September delivery rose 31 cents to $81.01 a barrel at 1:25 p.m EDT (1725 GMT), having traded from $80.71 to $81.76. Front-month ICE Brent crude rose 32 cents to $80.48 a barrel.

Oil prices have faded from last week's high of nearly $83 a barrel, dropping 1.6 percent on Friday in the wake of a disappointing US nonfarm payrolls report.

The Fed is widely expected to renew its commitment to keep interest rates near zero for an extended period at Tuesday's meeting. But traders also are watching closely to see if officials are more concerned about the economic recovery or about the danger of falling into a vicious cycle of falling prices and slowing growth.

The desire to wait for the Federal Reserve's announcement and the normal slumber during the August peak vacation period have lowered trading volume, industry sources said.

With an hour to go in the open outcry session in New York, trading volume for US crude was low, traders said, with a total 322,143 lots transacted, according to Reuters data. The 30-day average is 530,876 lots traded per day.

Meanwhile, Global stocks rose and the dollar edged higher on Monday.

The dollar edged higher against major currencies as investors were reluctant to place big bets ahead of the Fed's policy-setting meeting on Tuesday.

Volume was limited as traders and investors refrained from chasing prices aggressively, with many already pricing in some form of modest easing.

MSCI's all-country world index rose 0.4 percent, while its emerging markets index rose 0.6 percent.

At 1656 GMT, the Dow Jones Industrial Average was up 32.21 points, or 0.30 percent, at 10,685.77. The Standard & Poor's 500 Index was up 3.82 points, or 0.34 percent, at 1,125.46. The Nasdaq Composite Index was up 10.33 points, or 0.45 percent, at 2,298.80.

Against a basket of major currencies measured by the US Dollar Index, the dollar rose 0.35 percent to 80.685.

Stocks in Europe and Asia rose as investors grabbed riskier assets on expectations the Fed may inject extra stimulus to maintain a recovery, helping lift sentiment.

The FTSEurofirst 300 index of top European shares climbed 1.4 percent to close at 1,071.26 points.

Gold prices slipped a bit as the dollar recovered lost ground against the euro, but uncertainty ahead of a US Federal Reserve policy meeting later this week supported the precious metal above $1,200 an ounce.

Spot gold prices fell $4.25 to $1,200.00 an ounce.

The MSCI index of Asia Pacific ex-Japan equities rose 0.8 percent to its highest since May 4. Japan's Nikkei share average fell 0.7 percent, however, due to the negative impact of a stronger yen on exporters.