(Corrects to euro drop, not bounce, in first paragraph)
* Natgas retreat, euro slip vs dollar, pressures oil
* China yuan flexibility expected to boost oil demand
* Coming up: Federal Reserve 2-day meeting starts Tuesday (Recasts, updates prices, market activity)
By Robert Gibbons
NEW YORK, June 21 (Reuters) - Crude oil prices pared gains after jumping to a 6-1/2-week high on Monday, as a drop by the euro against the dollar and a slide by natural gas futures curbed oil's early rise after China's move to make its currency more flexible raised expectations for more demand.
At 1:56 p.m. EDT (1756 GMT), U.S. July crude <CLc1> was down 11 cents at $77.07 a barrel, after rising to $78.92, highest intraday price since $80.39 was struck on May 6.
The July contract expires on Tuesday and its deficit to the August contract <CL-1=R> narrowed on Monday, to around 86 cents from $1.08 on Friday.
August ICE Brent <LCOc1> fell 22 cents to $78 a barrel, retreating from its $79.86 peak.
U.S. July natural gas futures were down 12.7 cents at $4.870 per million British thermal units, after being up more than 2 percent.
"Crude prices (fell) here briefly with the fall in natgas prices being part of the reason. Also, equities are slightly lower at this point," said Phil Flynn, analyst at PFGBest Research in Chicago.
Sources also said weather models showing milder temperature forecasts in the medium term prompted natural gas traders to book profits after natural gas' recent rise.
"Technically, the inability of front-month crude to move above $79 appears to indicate that the news of China's revaluation of its currency may not be as strong an impetus as earlier thought. The dollar is also proving resilient and is coming back up," Flynn added.
China's yuan on Monday posted its biggest daily surge since its July 2005 landmark revaluation, sending a signal ahead of this weekend's G20 summit that Beijing is keeping its word and allowing greater currency flexibility. [
]The yuan closed at 6.7976 versus the dollar, up 0.42 percent from Friday's close of 6.8262. The 6.7958 intraday peak was an all-time high since the revaluation. [
]The euro fell to session lows against the dollar on Monday as stop loss orders were triggered once the euro dropped below $1.2350, traders said. [
]Analysts said a stronger yuan against the U.S. dollar might make Chinese imports of dollar-denominated oil less expensive, boosting demand consumption. [
]But the longer-term impact on oil and other commodity prices may be small, according to some analysts, since China will not let the yuan rise sufficiently high to make much difference to its companies' spending power on commodity imports [
]. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Take a Look - China vows yuan flexibility [
]Factbox on key China commodity imports [
]John Kemp column on yuan pledge: [
]For a graphic on China:http://link.reuters.com/zeh33m ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Copper also pared its gains after it was up strongly in response to the news about the yuan.
Reuters' analysis of official Chinese figures on Monday showed China's oil demand fell in May from April, though it remained up 9.4 per cent from year ago. [
].U.S. crude prices have recovered about 21 percent from the May 20 $64.24 intraday low, but remain more than $8 below the 2010 peak of $87.15 struck on May 3.
The technical picture had taken on a renewed bullish tone early on Monday, as NYMEX crude stretched its gain after opening above the 50-day moving average and found resistance at the 100-day moving average.
European and U.S. stock markets <
> <.SPX> rose, mirroring Asian equity gains after China's currency move boosted confidence in the global economy. But U.S. stocks were seen as overstretched technically. [ ]A focus this week for global markets is the U.S. Federal Reserve Federal Open Market Committee two-day meeting starting on Tuesday. Markets await confirmation that low interest rates and other economic stimulus measures will remain in place.
Supportive to crude prices was the dispute over Iran's nuclear program. Iran has barred two U.N. nuclear inspectors, adding to tension after Tehran was recently hit by new sanctions over its nuclear program. [
]Also seen as supportive to energy prices, Russia cut gas supplies to Belarus by 15 percent on Monday, pressing its neighbor to pay a $192 million debt and raising fears of disruptions in deliveries to Europe. [
] (Additional reporting by Gene Ramos in New York, Joe Brock and David Turner in London and Alejandro Barbajosa in Singapore; Editing by Sofina Mirza-Reid)