* Re-valuation effect on demand may outweigh lower exports
* Oil pares gains after yuan mid-point left unchanged
* Coming Up: China final commodity May trade data
* For a technical view, click: [
]By Alejandro Barbajosa
SINGAPORE, June 21 (Reuters) - Oil prices rose 1.4 percent on Monday, the highest since mid May, as China vowed at the weekend to allow a flexible yuan exchange rate, raising expectations of higher crude imports by the world's No. 2 oil user.
U.S. crude for July delivery <CLc1> rose as much as $1.09 to $78.27, the highest since May 10. It temporarily pared gains after China on Monday set the yuan mid-point unchanged from Friday, and was up 87 cents at $78.05 at 0139 GMT. [
]China announced on Saturday that it would resume making the yuan more flexible, signalling that it was ready to break a 23-month-old peg to the dollar that had come under intense international criticism. [
]But in a lengthy statement about how reform would proceed, the central bank explicitly ruled out a one-off revaluation, repeatedly said there was no basis for any big appreciation and added that the currency's value was not far off its fair level.
A flexible yuan could potentially strengthen against the dollar and render Chinese imports of dollar-denominated oil cheaper, fanning energy consumption.
"China is important for the global oil market and an appreciating yuan is gong to help fuel its imports," said Ben Westmore, a commodities analyst at National Australia Bank.
"But you are going to struggle to see oil break to the upside without a great deal of clarity about the euro situation yet," Westmore said, adding prices were unlikely to surpass their early-May 19-month peak above $87 before the end of the year.
Oil has recovered about 21 percent from a trough below $65 a month ago, but is still $9 lower than the 2010 peak.
ICE Brent crude for August <LCOc1> rose as much as $1.17 to $79.39 a barrel on Monday, the highest price since May 14, and was up 90 cents at $79.12.
Global stocks, commodity-linked currencies and other higher-yielding currencies may receive an immediate boost this week in response to China's decision on the yuan. [
]Japan's Nikkei average powered to a one-month high on Monday, but Shanghai's Composite Index opened up a marginal 0.2 percent and S&P futures trimmed gains after the yuan's mid-point was left unchanged from Friday. [
]Analysts have also said China's move towards a more flexible yuan was likely to be taken as a vote of confidence in the global economic recovery's staying power. [
]World stocks gained for a ninth straight day on Friday on improved risk appetite after a Spanish bond auction eased fears about sovereign debt in Europe and helped the euro hold near three-week highs. [
]In a sign of normalisation, Wall Street's fear gauge, the Volatility Index <.VIX>, tumbled below 24 on Friday after setting a 14-month high above 47 in May.
BP Plc <BP.L> <BP.N> estimates that a worst-case scenario rate for the Gulf of Mexico oil spill could be about 100,000 barrels of oil per day, according to an internal company document released on Sunday by a senior U.S. congressional Democrat. [
] (Editing by Ed Lane)