New York's main futures contract, light sweet crude for delivery in July, settled at 77.82 dollars a barrel, a gain of 64 cents from Friday's close.

In London, Brent North Sea crude for August delivery rose 60 cents to close at 78.82 dollars.

Oil advanced after China's central bank, the People's Bank of China (PBoC), said Saturday that it would allow the yuan more flexibility against the dollar, sparking expectations of higher demand for oil and other dollar-priced raw materials that spurred global market rallies.

"When China says it's going to revalue its currency, to some extent it's a vote of confidence in the global economy," said Bart Melek at BMO Capital Markets.

"They must be confident that exports are doing OK," he said.

The booming export-geared Chinese economy is leading the global recovery from recession and is considered the key driver of energy demand as the world's second-largest oil-consuming nation, after the United States.

Critics, including the United States, say China maintains the yuan or renminbi undervalued against the dollar to make Chinese exports unfairly cheaper, hurting rival trading nations.

"The PBoC's announcement on Saturday that the renminbi will exit from its peg against the dollar, returning to the arrangement in place prior to the global financial crises, is positive, in our view, for commodity prices," said Hussein Allidina at Morgan Stanley Research.

"To be clear, China is a significant consumer of many/most commodities, and has been responsible for a marked portion of demand growth in recent years -- a stronger renminbi will reduce commodity prices, supportive to demand."

BMO Capital's Melek noted "some level of ambiguity" about China's announcement.

In Saturday's vaguely worded statement, the central bank said it would "strengthen the flexibility" of the yuan's exchange rate.

"People are trying to determine how real this is," Melek said.

China's yuan hit its strongest level in five years Monday after authorities pledged limited currency reform, but analysts said Beijing's vow was unlikely to assuage critics of its exchange-rate controls.

China's currency move was widely seen as a bid to head off pressure from the United States and other advanced economies at this weekend's Group of 20 summit in Canada to allow the yuan to appreciate.

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