New York's main contract, light sweet crude for January delivery, closed at 78.37 dollars a barrel, up 1.09 dollars from Monday.

In London, Brent North Sea crude for January delivery gained 88 cents to settle at 79.35 dollars a barrel.

Oil futures had climbed more than 1.20 dollars Monday, in part as a result of waning default fears after last week's announcement by the Dubai government that it wants a six-month debt moratorium for its key conglomerate Dubai World.

Another factor still supporting prices was Iran's seizure of five British sailors in the Gulf, analysts said.

A top aide to Iran's President Mahmoud Ahmadinejad said on Tuesday that the five British sailors detained in Gulf waters would be dealt with firmly if found guilty of "ill intentions."

"Any headline including Iran has become a bit more sensitive and with the early uncertainty about the boat involved, it did not take long for oil prices to soar," said Petromatrix analyst Olivier Jakob.

The market also found support from robust manufacturing data in China, whose energy-hungry economy is leading the world out of the worst recession in decades.

"Iran is very bullish," said Ellis Eckland, an independent analyst.

Geopolitical tensions continued to simmer Tuesday as Iran hit out at its longtime nuclear partner Russia over a yes vote for a censure motion at the UN atomic watchdog and insisted it was serious about plans for 10 additional uranium enrichment plants.

"Russia made a mistake. It does not have an accurate analysis of today's world situation," Ahmadinejad said in a televised interview.

World powers are angry after Iran announced Sunday it plans to build 10 new uranium enrichment plants, heaping scorn on a rebuke by the UN atomic watchdog for constructing its second such plant near the Shiite holy city of Qom.

Twenty-five of the 35 members of the International Atomic Energy Agency (IAEA) voted against Tehran and asked it to freeze the building of the plant.

In a separate development on Tuesday, Iran, OPEC's second-largest oil producer, said that it did not expect a decision to hike crude output at the cartel's meeting later this month.

"Given the circumstances, there will not be an output increase and OPEC will not permit members to do it," Oil Minister Masoud Mirkazemi told reporters at a press conference.

"These days the (market) situation is not right to raise output. This is my forecast," he said.

The minister also urged members of the Organization of the Petroleum Exporting Countries, who are to meet on December 22 in Luanda, to work to stabilize oil prices. "We should exert effort to reach price stability in the market."

OPEC president Jose Maria Botelho de Vasconcelos of Angola had said in November that a price of between 75 and 80 dollars a barrel would be satisfactory.

Mike Fitzpatrick of MF Global predicted that OPEC would leave quotas unchanged, "so there's plenty of supply at this point."

"We couldn't breach higher. The evidence of recovery is spotty and I think that's why the market is vulnerable," he added.

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