UPDATE 2-Oil climbs 1.4 pct after China vows flexible yuan

                                
 * 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: [ID:nSGE65K00L]
 (Adds implications of yuan re-valuation, comments, FOMC meets)
                                
 By Alejandro Barbajosa
                                
 SINGAPORE, June 21 (Reuters) - Crude prices rose 1.4
percent on Monday to the highest levels since mid May after
China vowed 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
as did stock markets after China on Monday set the yuan
mid-point unchanged from Friday, and was up 97 cents at $78.15
at 0204 GMT. [ID:nECB000552]
                                
 A stronger yuan against the greenback may render Chinese
imports of dollar-denominated oil cheaper, fanning energy
consumption, analysts including Ben Westmore, from National
Australia Bank said.
                                
 "China is important for the global oil market and an
appreciating yuan is going to help fuel its imports," said
Westmore.
                                
 "The natural implication of a re-valuation is that your
import prices are falling. If you expect inflation to be kept
under control, authorities won't need to tighten and that will
have a comparatively stimulatory impact on the domestic
economy."
                                
 China announced on Saturday that it would resume making the
yuan flexible, signalling that it was ready to break a
23-month-old peg to the dollar that had come under intense
international criticism. [ID:nTOE65J004]
                                
 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.
                                
 "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.
                                
 U.S. crude 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 $1.11 at $79.33.
                                
 YUAN'S WIDE IMPACT
                                
 "The positive impact from a re-valuation will offset the
adverse effect on the external sector," Westmore said. "The
U.S. economy is recovering faster than we thought three or four
months ago."
                                
 Final Chinese commodity trade statistics for May, to be
published later on Monday, were also in focus.
                                
 "The news of the yuan is more important for metals than for
crude because a larger proportion of metals flows into China,"
Westmore said.
                                
 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. [MKTS/GLOB]
                                
 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. [ID:nTOE65K00B]
                                
 Analysts have also said China's move towards a flexible
yuan was likely to be taken as a vote of confidence in the
global economic recovery's staying power. [ID:nN20171161]
                                
 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. [MKTS/GLOB]
                                
 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.
                                
 The oil market was also set to focus on this week's U.S.
Federal Reserve's Federal Open Market Committee (FOMC) two-day
meeting on interest rates to June 23, seeking further evidence
that low borrowing costs and other economic stimulus measures
will remain in place for the rest of the year.
                                
 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. [ID:nN19188555]
 (Editing by Ed Lane)