By Edward McAllister

NEW YORK (Reuters) - Oil rose above $81 a barrel on Thursday as the U.S. dollar weakened and a fall in U.S. jobless claims brightened hopes of economic recovery in the world's largest oil consumer.

The number of U.S. workers filing for jobless aid fell sharply last week, according to the Labor Department, and a gauge of underlying labor market trends hit its lowest in 1-1/2 years, signaling that the economy could be on the verge of creating jobs.

Meanwhile, the euro rose from a 10-month low against the U.S. dollar on Thursday ahead of a summit meeting of European leaders in Brussels to discuss possible aid for heavily-indebted Greece. Some positive comments from EU leaders ahead of the group's summit helped the euro to recover.

A weaker dollar signals investors moving out of the dollar and into assets deemed riskier such as commodities and equities, which helps support crude prices.

U.S. crude for May delivery rose 50 cents $81.11 a barrel by 12:35 p.m. EDT. ICE London Brent for May rose 47 cents to $80.09.

"Investors were watching Brussels today -- and will continue to focus on it tomorrow -- in the hope that some concrete type of assistance will be thrashed out over the sovereign debt issue," said Peter Beutel, president of Cameron Hanover, in New Canaan, Connecticut.

EU leaders hold what is likely to be a tense and difficult summit on Thursday, divided over how to help heavily indebted Greece and struggling to maintain confidence in the euro.

Wall Street extended gains in late morning trade on Thursday, pushing the Nasdaq up more than 1 percent amid optimism about earnings. Continued...