Brent crude advanced $1.16 to $117.90 a barrel

Crude prices climbed more than$1 on Monday, sending Brent towards $118, as lawmakers in theUnited States moved closer to raising the nation’s borrowinglimit and averting a default by the world’s top oil consumer.

Signalling a bipartisan $3-trillion agreement could beimminent, an aide said Senate Majority Leader Harry Reid wouldsupport the emerging deal as long as fellow Democrats backed it.

Brent crude advanced $1.16 to $117.90 a barrel by2348 GMT, rebounding from Friday’s close at $116.70, the lowestsince July 18. Brent is less than $10 from this year’s peakabove $127, while U.S. crude gained $1.26 to $96.96.

Growing momentum toward a compromise in Washington raisedhopes that a weeks-long partisan battle over cutting the U.S.deficit was nearing an endgame. There are just two days left tolift the debt ceiling, which caps how much money the UnitedStates can borrow to pay all of its bills

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“The market is cautiously optimistic, so we couldpotentially see a euphoric rally based on the fact that we aregetting close to an agreement,” said Jonathan Barratt, managingdirector at Commodity Broking Services in Sydney

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“The initial reaction is that it will act as a stimulusbecause more money will be put into the economy. The flipside ishow long that will last, and concerns about how spending will becut in the longer term. It’s a double-edged sword

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U.S. stock futures jumped and the dollar rebounded in a signof relief. The Swiss franc, the favored safety currency duringthis crisis, pulled back from record highs against the dollar,and gold slipped off all-time peaks

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Oil prices tumbled on Friday following data showing the U.S.economy grew a slower-than-expected 1.3 percent in the secondquarter

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The prospect of a U.S. debt default has left a cloud overbusinesses already reeling from the economy’s tepid performance,and are likely to have left them reluctant to ramp up hiring inJuly.

Two other reports on Friday showed business activity in theU.S. Midwest grew less than expected this month as the labormarket weakened, while U.S. consumer sentiment fell in July toits lowest point in more than two years.

Money managers raised net long U.S. crude futures andoptions positions in the week to Tuesday. Bets that prices willrise posted a sharp increase in the Intercontinental Exchange’slook-a-like U.S. crude contract, the U.S. Commodity FuturesTrading Commission said.

The U.S. National Hurricane Center sees a near 100 percentprobability that a low-pressure area heading from the AtlanticOcean into the Caribbean Sea will become a tropical cyclone overthe next two days, keeping the hurricane season in traders’minds.

Last week, Tropical Storm Don shut nearly 12 percent of U.S.Gulf of Mexico crude output as it headed towards the Texascoast.

The U.S. Bureau of Ocean Energy Management said 6 percent ofthe Gulf’s oil output remained shut on Sunday, down from 10.9percent on Saturday. (Reporting by Alejandro Barbajosa)