diff --git a/mercurial/hg.py b/mercurial/hg.py
--- a/mercurial/hg.py
+++ b/mercurial/hg.py
@@ -18,7 +18,14 @@ def set_exec(f, mode):
     s = os.stat(f).st_mode
     if (s & 0100 != 0) == mode:
         return
-    os.chmod(f, s & 0666 | (mode * 0111))
+    if mode:
+        # Turn on +x for every +r bit when making a file executable
+        # and obey umask.
+        umask = os.umask(0)
+        os.umask(umask)
+        os.chmod(f, s | (s & 0444) >> 2 & ~umask)
+    else:
+        os.chmod(f, s & 0666)
 
 class filelog(revlog):
     def __init__(self, opener, path):
@@ -1003,7 +1010,7 @@ class localrepository:
             try:
                 self.wfile(f, "w").write(t)
             except IOError:
-                os.makedirs(os.path.dirname(wp))
+                os.makedirs(os.path.dirname(self.wjoin(f)))
                 self.wfile(f, "w").write(t)
             set_exec(self.wjoin(f), mf2[f])
             self.dirstate.update([f], mode)
@@ -1015,7 +1022,7 @@ class localrepository:
             self.ui.status("merging %s\n" % f)
             m, o, flag = merge[f]
             self.merge3(f, m, o)
-            set_exec(wp, flag)
+            set_exec(self.wjoin(f), flag)
             self.dirstate.update([f], 'm')
 
         for f in remove: