Crude oil rose for the first time in a week as the dollar weakened against the euro, boosting the appeal of commodities as an alternative investment.

Oil gained as much as 2.5% as the dollar fell to a 12-week low against the euro. Unemployment also dropped in Germany, and confidence in Europe's economy improved. Futures gave up some of the gain as U.S. equities declined.

"The oil market is being set by the financial markets," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "We're back to that kind of correlation trade and not paying so much attention to niggly details like rising inventories and rising OPEC production."

Crude for September delivery gained 87 cents, or 1.1%, to $77.86 a barrel at 12:54 p.m. on the New York Mercantile Exchange. Prices have risen 23% in the past year and are up 2.9% this month.

The dollar fell against a majority of its most-traded counterparts. The euro increased 0.6% to $1.3077 in New York. Earlier, it climbed to $1.3107 amid the increased European confidence.

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