* U.S. gasoline stocks fall 5.2 mln barrels
* Brent-WTI spread narrows to near 7-month lows
* Weaker U.S. dollar boosts oil buying
* Russia seeks to reassure West, Ukraine over troops
* Libya not in full control of reopened eastern port (Adds settlement prices, analyst commentary)
By Elizabeth Dilts
NEW YORK, April 9 (Reuters) - U.S. crude rose more than $1 on Wednesday, driven by a technical rally and unexpectedly high gasoline demand, while tensions between Russia and the West underpinned Brent crude prices.
U.S. crude oil stocks rose more than expected last week, but the build was overshadowed by a sharp spike in gasoline demand, according to U.S. Energy Information Administration data.
The data boosted U.S. gasoline and crude oil prices above key technical levels, and pushed the closely watched and traded price spread with Brent, the European benchmark, to the narrowest point in nearly 7 months.
Investors continued to worry about the crisis in Ukraine, which has severely strained relations between Moscow and Washington.
U.S. Secretary of State John Kerry telephoned Russian Foreign Minister Sergei Lavrov twice after a senior U.S. diplomat said earlier on Wednesday that Washington had no doubt Russians instigated the separatist occupation of several government buildings in eastern Ukraine this week.
“The geopolitical tension continues to hang over the (Brent) market,” said Bill Baruch, senior market strategist at iitrader.com.
In the U.S. crude market, “gasoline inventories showed a massive drawdown, which drove WTI to rally past technical levels at $102.75,” pushing traders to buy back positions they may have sold short, Baruch added.
U.S. RBOB gasoline settled nearly 3 cents higher at $3.0084 per gallon.
U.S. oil rose as much as $1.21 to a session high of $103.77 a barrel. The contract settled $1.04 higher at $103.60 per barrel.
Brent crude settled 31 cents higher at $107.98 a barrel.
The WTI-Brent CL-LCO1=R spread narrowed by 73 cents to settle at $4.38, the tightest settlement since Sept. 19.
Brent prices were not affected by the potential for a rebound in Libyan oil exports as the country’s oil protection force said it had not regained full control of the Zueitina port. The government had announced a deal with rebels to end the blockade of eastern oil terminals earlier this week.
The port, along with the country’s two largest, Es Sider and Ras Lanuf, has been under the control of an eastern federalist group led by former guard member Ibrahim al-Jathran, who recruited men from within his ranks.
U.S. crude inventories rose by 4 million barrels in the week to April 4, data from the Energy Information Administration (EIA) showed, compared with analysts’ expectations for an increase of 1.3 million barrels.
But analysts were focused on the steeper-than-expected fall in gasoline stocks, which they said added to evidence of a broad economic recovery and robust demand as the summer driving season gets started.
Gasoline stocks fell by 5.2 million barrels, dwarfing the 729,000-barrel-draw that was expected.
“The gasoline demand is jaw dropping. Here we are in the first week of April and gasoline demand is pretty strong,” said Carl Larry of consultancy Oil Outlooks.
“The more jobs we’ve seen created, the more people back to work has really driven gasoline demand back up.” (Additional reporting by Peg Mackey in London and Manash Goswami in Singapore; Editing by Jane Baird, David Evans, Tom Brown, Nick Zieminski and Andre Grenon)