Oil prices extended their rally to near their highest in seven months on Monday, as dollar weakness, stock market optimism and sustained hope for economic recovery supported the market's best monthly gains in a decade.

A fresh global round of purchasing manager indices (PMIs) due throughout the day -- starting in China and concluding in the United States -- may provide the next impetus for a push higher, while the oil demand recovery that's visibly underway in No. 2 consumer China could be tested by a retail price rise.

U.S. light, sweet crude rose 22 cents to $66.53 a barrel by 2313 GMT, off its earlier peak of $66.63, only a penny away from Friday's intra-day high.

ICE Brent crude rose 6 cents to $65.58 a barrel.

Prices rallied 30 percent in May, hitting their highest since early last November and giving OPEC enough hope about the outlook that it agreed to maintain production at last week's meeting.

At the same time, the group seems unlikely to move quickly to curtail oil's rally. At the weekend Saudi Oil Minister Ali al-Naimi said OPEC would wait until crude inventories fall to around 53 days of forward cover before considering raising output, nearly 10 days below current levels.

Some fundamentals are now showing gradual signs of improvement, with U.S. crude stocks falling sharply last week and gasoline inventories dropping for the fifth week, but analysts say economic conditions and financial markets have been key.

The U.S. dollar and oil prices are trading in near-perfect correlation on a 30-day basis, and Friday's $1.23 crude oil gain came as the dollar sank to a five-month low as investors bought higher-yielding currencies and assets.

Later on Monday China, India, Eurozone and U.S. PMI indicators will provide the next checkpoints for the global economy, which appeared to be healing last week after improved industrial output data from Japan and revised U.S. GDP figures.

But many analysts are cautioning that the oil market may be racing ahead of reality, fueled largely by speculators that have expanded their net length in NYMEX crude contracts to over 40,000 lots, the highest since February.

My thinking is that most of the commodity markets, the base metals as well as oil, have moved to factor in economic recovery, and probably a fairly decent 'V', said Commonwealth Bank of Australia commodity strategist David Moore.

There is a risk that if economic data does not continue to support this view of the world that markets become disappointed with the pace of economic recovery, leading to price setbacks.

There's also a risk of tempered demand growth as higher prices are gradually being passed on to some of the world's fastest-growing consumers, with Beijing bowing to price pressure and raising retail diesel and gasoline prices by 6-7 percent, the second and biggest rise this year.

(Reporting by Jonathan Leff; Editing by Alex Richardson)