UPDATE 6-Oil falls 2% on U.S.-China tensions, rising virus cases

* U.S.-China tensions push investors to safety
* Virus resurgence weighs on prices
* U.S. dollar index hits 2-year low

(New throughout, updates prices, market activity, commentary;
changes byline, dateline, previous SINGAPORE/LONDON)
By Stephanie Kelly
NEW YORK, July 27 (Reuters) - Oil prices dropped nearly 2%
on Monday despite a weaker U.S. dollar, as rising coronavirus
cases and tensions between the United States and China clouded
the outlook for oil demand's recovery.
Brent crude LCOc1 lost 81 cents, or 1.9%, to $42.53 a
barrel by 11:13 a.m. EDT (1513 GMT), while U.S. West Texas
Intermediate (WTI) crude CLc1 fell 65 cents, or 1.6%, to
$40.64 a barrel.
Following the closures of consulates in Houston and Chendu,
investors worried about relations between China and the United
States and have retreated to safe havens, such as gold and
bonds. [ ]
"In lack of larger fundamental news, oil prices are
following the overall macro trends, behaving as a 'risky asset'
and being traded lower when safe-haven assets strengthen," said
Bjornar Tonhaugen, head of oil markets at Rystad Energy.
Meanwhile, global cases of the new coronavirus exceeded 16
million, and the virus is surging in areas of the United States.
While oil demand has risen after plunging in the second
quarter, reimposed lockdowns because of rising infection rates
have made the recovery uneven. Expectations of U.S. stimulus measures and a weak dollar,
which makes dollar-denominated commodities cheaper for holders
of other currencies, capped losses.
The U.S. dollar index .DXY reached its lowest since June
2018, hurt by deteriorating U.S.-China relations and domestic
economic concerns. A weaker dollar is generally
supportive for dollar-denominated oil prices.
U.S. Senate Republicans on Monday are expected to unveil a
new $1 trillion coronavirus aid package. "Massive monetary stimulus has bullish implications for
oil," analysts from Raymond James said in a note, adding that
oil has historically moved upwards with inflation spikes and
that the current U.S. money supply increase is unprecedented.
Brent remained on track for a fourth straight monthly gain
and WTI was set to rise for a third month as supply cuts from
the Organization of the Petroleum Exporting Countries and Russia
provided support.