Oil above $130 on weak dollar

LONDON (Reuters) - Oil rose by more than $2 a barrel to above $130 on Friday, extending large gains in the previous session as the U.S. dollar weakened on signals the European Central Bank may raise interest rates this year.

Comments from Israel's transport minister that an attack on Iranian nuclear sites looks "unavoidable" given the apparent failure of sanctions to deny Tehran technology with bomb-making potential also helped drive prices higher.

This was the most explicit threat yet against Iran from Prime Minister Ehud Olmert's government.

U.S. light crude for July delivery was up $2.30 at $130.09 a barrel by 10:30 a.m.

Oil surged $6 in after-hours trading on Thursday in the U.S., erasing two days of sharp losses triggered by worries that high oil prices were starting to dent demand.

London Brent crude rose $2.07 cents to $129.61.

Analysts said the dollar's weakness in the wake of comments from the ECB sparked a rush to cover oversold positions.

"We may well see a follow through rally today as traders will be nervous of too much short exposure as fundamental headlines still emanate from a bullish stance," said Robert Laughlin at MF Global.

Societe Generale's head of commodities derivatives in Asia, Marc Lansonneur, said the market was in a state of uncertainty after Thursday's $6 move.