UPDATE 6-Oil falls on strong dollar, stalling rally that opened 2018

* Dollar surges on U.S. job growth, wages increase

* US crude down more than 2 pct for the week

* Reuters survey shows strong compliance with output cuts

* U.S. output exceeded 10 mln bpd in Nov, a first since 1970 (New throughout, updates prices and market activity, adds rig count figures)

NEW YORK, Feb 2 (Reuters) - Oil prices fell on Friday as the dollar surged following strong U.S. jobs numbers, though compliance with output cuts by OPEC and rising global demand kept much of the early-year oil rally in place.

An increasingly correlated trade between oil, stocks, bonds and the dollar has amplified swings in the markets.

U.S. West Texas Intermediate (WTI) crude fell 46 cents, or 0.7 percent, to $65.33 as of 1:19 p.m. EST (1819 GMT) and has lost 1.3 percent for the week.

Brent, the global benchmark, was down $1.02, or 1.5 percent, to $68.62 a barrel.

Oil fell as the dollar rose after U.S. jobs growth surged in January and wages rose, recording their largest annual gain in more than 8-1/2 years.

Oil prices have come under pressure because of rising oil production in the U.S., together with a marginal rebound in the U.S. dollar index. The price is currently in overbought territory, which has also promoted profit taking," said Abhishek Kumar, senior energy analyst at Interfax Energys Global Gas Analytics in London.

The once-strong connection, where oil rises when the dollar falls and vice versa, ebbed between 2014 and 2016 during a three-year supply glut.

With supply tightening, the relationship has reasserted itself. Since the beginning of the year, oil and the U.S. dollar index have had a correlation of -0.86, with -1 being a perfectly inverse relationship.

Crude still has support because of output cuts by large producers and strong demand.

"The OPEC/non-OPEC production and U.S. tight oil have justifiably been a focus this year. Yet demand has quietly underpinned the tightening of the market over the past year," said Jon Rigby, UBS analyst, in a note.

Global oil demand rose by 1.6 million bpd, or about 1.5 percent, last year and UBS said it should grow by another 1.3 million this year.

January production from the Organization of the Petroleum Exporting Countries rose from an eight-month low, according to a Reuters survey. Russian data showed strong compliance with output cuts, even as production hit 10.95 million bpd.

The cuts have offset gains in U.S. crude production. U.S. output surpassed 10 million bpd in November for the first time since 1970, the Energy Information Administration said this week. For the week to Feb. 2, Baker Hughes said drillers added six rigs to bring the overall count to 765, the second straight week of gains.

(Additional reporting by Dmitry Zhdannikov, Henning Gloystein and Aaron Sheldrick; Editing by David Gregorio)