By Moming Zhou & Polya Lesova, MarketWatch NEW YORK (MarketWatch) -- Crude-oil futures rose Friday to extend their weekly gains after the government reported a surprising improvement in the U.S. jobs market, raising hopes for an economic recovery and rising demand for oil. The Labor Department reported the U.S. labor market improved markedly in November, with the unemployment rate falling back to 10% and job losses shrinking to the lowest level in nearly two years. The upbeat report boosted commodities and stocks, while the U.S. dollar also rose, adding pressure to gold prices. Crude oil for January delivery rose $1.29, or 1.7%, to $77.75 a barrel on the New York Mercantile Exchange. Oil was down nearly 1% before the data. Crude is set to end the week up more than 2%. The United States Oil Fund (USO 39.22, +0.70, +1.82%) , the biggest oil exchange-traded fund, rose 2.2%, and the United States Natural Gas Fund (UNG 8.61, +0.10, +1.18%) was up 2.6%. Nonfarm payrolls dropped by a seasonally adjusted 11,000 in November, the fewest since December 2007, the Labor Department said. Payroll losses in September and October were revised lower by a total of 159,000. The report was much better than expected by economists surveyed by MarketWatch, who were looking for 100,000 fewer jobs and a steady 10.2% unemployment rate. The data is important for the oil market because good economic news usually boosts oil prices, since it raises hopes of a swift economic recovery as well as a rebound in energy demand. "The jobs number renewed hopes that energy demand could recover from current dismal levels," said Phil Flynn, vice president at futures trading and research firm PFG BEST Research. In currencies trading Friday, the dollar rebounded strongly following the jobs data. The dollar index (DXY 75.17, +0.54, +0.73%) was last up 0.7% to 75.192. Strength in the greenback often adds pressures on dollar-denominated commodities prices. Gold prices fell more than 2%. Also in energy trading, January gasoline rose 1.8% to $2.027 a gallon, and January heating oil gained 1.5% to $2.0809 a gallon. January natural gas advanced 2.8% to $4.584 per million British thermal units. Investment demand for commodities has been very strong in recent weeks. Commodity-sector funds, tracked by EPFR Global, posted inflows of over $1 billion for the third straight week in early December. During the week ended Dec. 2, this fund group absorbed $1.13 billion, taking year-to-date inflows to over $24 billion, EPFR Global said. Worries about fundamentals Some analysts still worried about the fundamental demand, supply in the oil market. A weekly report released on Wednesday by the Energy Information Administration also painted a gloomy picture in oil's demand. Crude inventories in the U.S. showed a big rise as demand fell last week. "While somewhat cheered by the jobs number, investors still maintain a degree of skepticism relative to sustainable recovery," said Mike Fitzpatrick, an analyst at MF Global. The oil market is still facing "sluggish energy demand growth in the near term."

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