Saudi Arabia's King Fahd died on Monday and Crown Prince Abdullah was swiftly pronounced monarch of the world's largest oil exporter and a key U.S. ally.

A Saudi source said the kingdom's oil policy would not change. Diplomats said they expected no major shifts in foreign policy under King Abdullah, who is at least 80 and has run day-to-day affairs since a stroke debilitated Fahd in 1995.

"With deep sorrow and pain, the royal court... mourns the death of The Custodian of the Two Holy Mosques King Fahd due to illness," said Information Minister Iyad bin Amin Madani, reading an official statement on state television.

Fahd, who was believed to be 83 and had been in poor health, had entered hospital on May 27 with acute pneumonia. A medical source said he died at around 6 a.m. local time.

"The royal family members have acknowledged Crown Prince Abdullah as sovereign of the country ... after which the Custodian of the Two Holy Mosques and ruler of Saudi Arabia King Abdullah bin Abdul Aziz chose

Prince Sultan as crown prince and the family members acknowledged that," the statement said.Prince Sultan, like King Abdullah, was born in 1924.

U.S. crude oil jumped 61 dollars a barrel after Fahd's death. The Saudi source said Riyadh would adhere to its long-standing oil policy aimed at keeping global markets well supplied to stabilize prices.

"I am sure nothing will change regarding Saudi Arabia's oil policy," the source told Reuters.

The Saudi stock market, the largest Arab bourse, briefly suspended trading and was down almost 2 percent after reopening.

Funeral on Tuesday

A Saudi official said Fahd's funeral would take place on Tuesday to give time for foreign dignitaries to take part.

Ordinary Saudis said they were saddened, but not surprised, by Fahd's death. Over the past decade, the wheelchair-bound king's public appearances became increasingly rare. He chaired occasional cabinet meetings but barely spoke in public.

"I am very sad but this will happen to all of us," said government employee Saud Mohammed. "The king is now in God's hands."

In Cairo, an Arab League official said this week's Arab summit in Egypt would be postponed for a few days.

The Palestinian Authority announced a three-day mourning period in memory of Fahd. PA Chairman Mahmoud Abbas will lead a Palestinian delegation to the king's funeral, Abbas' office said.

The official WAFA news agency announced the mourning period and said flags were lowered to half-mast on all governmental institutions. Palestinian television and radio stations broadcast excerpts of the Quran as part of the mourning.

Palestinian Prime Minister Ahmed Qureia described the king's death as a great loss and offered condolences to the Saudi nation.

Saudi Arabia, the richest country in the Arab world, was the first to open its doors to Palestinian workers decades ago and is the largest donor to the PLO and to the Palestinian Authority.

Abdullah, the fifth son of Saudi Arabia's founder King Abdul-Aziz to ascend the throne, is a cautious reformer who has overseen modest economic and political liberalisation.

In the past two years, the kingdom has faced a violent al Qaeda campaign to end seven decades of the royal family's rule in Saudi Arabia, home to Islam's holiest shrines.

Fahd ascended the throne of one of the world's richest nations in June 1982, at the height of Saudi Arabia's petrodollar boom and reigned for 23 years, through three regional wars and, in his final years, al Qaeda militancy. His strong alliance with Washington and his decision to allow U.S. forces to deploy in Islam's birthplace in 1990 enraged Saudi-born al Qaeda leader Osama bin Laden.

Bin Laden has vowed to depose the Saudi royal family who he blasted as U.S. "agents and stooges" and whose rule he described as an "extension of the crusader wars against Muslims".

U.S. troops remained until the 2003 invasion of Iraq and the overthrow of Iraqi President Saddam Hussein.

By that time the Sept. 11, 2001 attacks, carried out mainly by Saudi hijackers, had clouded the relationship with the United States which had been Fahd's foreign policy cornerstone.

Suicide bombings in the capital Riyadh two years later brought insurgency home, while the strategic alliance with Washington, centred on oil and Gulf security, was in crisis.

But ties partly recovered after intense diplomacy by both countries and Riyadh's support for the U.S. "war on terror".

During his rule, Fahd introduced limited political change, appointing a Shura advisory council which has slowly gained influence since its establishment more than 10 years ago.