* G20 puts growth before austerity, vows to tread carefully * Hedge fund bets on U.S. oil prices hit record level-CFTC * China frees up lending rates in major reform * Coming Up: U.S. existing home sales; 1400 GMT (Updates prices) By Manash Goswami SINGAPORE, July 22 (Reuters) - U.S. oil continued to trade above Brent futures on Monday after flipping to a premium for the first time since 2010 in the previous session, while both benchmarks held firmly above $108 a barrel amid hopes of a revival in global demand growth. A pledge by the Group of 20 nations, which account for 90 percent of the world economy, to put growth before austerity fuelled hopes of a recovery in consumption of commodities. U.S. oil got a further boost as refineries in the world's top oil consumer ramped up runs, helping the contract surge ahead of the global crude-market benchmark, North Sea Brent. Brent rose 48 cents to $108.55 a barrel by 0704 GMT, after settling 63 cents lower on Friday. U.S. benchmark West Texas Intermediate (WTI) crude gained 55 cents to $108.60 after hitting a 16-month high of $109.32 in the prior session. "The U.S. contract will be the main driver of oil with Brent tracking the U.S. contract," said Tetsu Emori, a commodities fund manager at Astmax Investments in Tokyo. "The United States is using more and more of its own oil, which means less demand for barrels priced in Brent." The convergence of the two front-month benchmarks comes as increased pipeline capacity has drained the glut of oil at the WTI delivery point of Cushing, Oklahoma, to the U.S. Gulf Coast, where refinery demand has been high. Stocks at Cushing have fallen to 46 million barrels from 52 million in January. SPREAD The jump in the U.S. benchmark on Friday was also assisted by hedge funds, who amassed record bets on rising U.S. crude oil prices in the week to July 16, trade data by the U.S. Commodity Futures Trading Commission (CFTC) showed. Astmax's Emori expects the difference between the two contracts to remain narrow for the rest of the year, with both rising overall in tandem. U.S. crude may command a premium of as much as $3 a barrel over Brent, with the European marker rising by as much over the U.S. contract, he said. The WTI may rise to $115 by the end of the year, he said. Brent may also gain to the same levels, and rise to about $120-$125 a barrel if geopolitical tensions in the Middle East worsen or there is a supply shock. Crude prices were also supported by China's move to remove controls on bank lending rates that could lower financial costs for companies, offering hopes that cheaper credit will help support the softening economy and drive demand from the world's No.2 oil consumer. "These policy changes are likely to be stimulatory for the economy as state-owned enterprises will face a lower effective borrowing rate," analysts at ANZ said in a note. (Editing by Himani Sarkar and Richard Pullin)

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