UPDATE 8-Oil lifted by weak dollar in volatile trade

                                
 * Dollar index nears all-time low
                                
 * U.S. jobless claims down less than expected
                                
 * Coming up: Oil markets shut Friday ahead of Easter
 (Recasts, updates prices, market activity)
                                
 By Robert Gibbons
                                
 NEW YORK, April 21 (Reuters) - U.S. crude prices rose on
Thursday in volatile trading on lift from a weak dollar that
slumped to its lowest level since 2008.
                                
 Brent crude posted a small gain after also seesawing and
both contracts saw thin trading volumes ahead of a long holiday
weekend.
                                
 Investors bought oil as a hedge against a tumbling dollar
as the dollar index <.DXY> hit its lowest since 2008 against a
basket of currencies and had its all-time low in sight. [USD/]
                                
 Disappointing reports on factory activity and U.S. initial
jobless claims cast doubt on the pace of U.S. economic recovery
and energy demand growth, limiting oil's gains.
                                
 Brent crude for June <LCOc1> rose 14 cents to settle at
$123.99 a barrel, having earlier pushed up nearly $1 to
$124.81, the highest since April 11.
                                
 U.S. crude <CLc1> for June rose 84 cents to settle at
$112.29, bouncing off a session low of $111. U.S. crude posted
a 2.4 percent weekly gain.
                                
 Thin trading volumes made prices more volatile. Total U.S.
crude volumes were 39 percent below the 30-day average, and
Brent volumes 46 percent below, according to Reuters data
during post-settlement trading.
                                
 Oil markets in the United States and Europe will be shut on
Friday for a holiday. For details click on [ID:nN21442533].
                                
 U.S. gasoline futures <RBc1> ended at $3.3086 a gallon, the
highest settlement since July 2008 as the summer driving season
approaches. U.S. heating oil futures <HOc1> ended lower.
                                
 "We viewed today's new gasoline highs as essentially
keeping this bull move alive as we still see additional gains
ahead across the complex," Jim Ritterbusch, president at
Ritterbusch & Associates in Galena, Illinois, said in a note.
                                
 With gasoline prices already $4 a gallon in some states,
the Obama administration unveiled a working group of federal
agencies to probe potential fraud in the energy markets.
[ID:nN21278883]
                                
 Brent crude's premium to its U.S. counterpart <CL-LCO1=R>
narrowed by 80 cents to $11.60 a barrel by 4:26 p.m. EDT (2026
GMT) in post-settlement trading.
                                
 "Brent has lost a little momentum in its rally," said Gene
McGillian of Tradition Energy in Connecticut. "But it's still
got a big advantage to U.S. crude and that spread is unwinding
a bit now."
                                
 U.S. DOLLAR SWOON
                                
 The dollar weakened this week after Standard & Poor's cut
its outlook for U.S. government debt to negative, leading some
foreign exchange analysts to tout the euro's potential as an
alternative reserve currency. [USD/]
                                
 A weaker dollar can lift dollar-denominated oil prices by
making oil less expensive for consumers using other currencies
and by drawing investment away from foreign exchange markets
seeking better returns.
                                
 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 Graphic on inverse correlation between oil and dollar:
                                
 http://link.reuters.com/pyd29r
                                
 To view EIA's weekly crude figures, click here:
                                
 http://www.eia.gov/dnav/pet/pet_move_wimpc_s1_w.htm
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 Both Brent and U.S. prices had rallied on Wednesday after
the U.S. government reported crude oil and refined products
inventories fell. [EIA/S]
                                
 AFRICA/MIDDLE EAST TURMOIL
                                
 Threats to supply in Africa and the Middle East remain and
election turmoil in Nigeria and unrest in Yemen kept the
uncertainty in focus. [ID:nLDE73K1HL] [ID:nLDE73K11F]
                                
 Muammar Gaddafi's forces attacked a rebel-controlled oil
pumping station in eastern Libya, an official with an
insurgent-run oil company said. [ID:nLDE73K12B]
                                
 The International Energy Agency's Chief Economist Fatih
Birol said oil producing nations need to reassure the market
after unrest in the Middle East and worries about supply
disruptions pushed crude prices higher. [ID:nLDE73K1M6]
                                
 JOBLESS CLAIMS, FACTORY DATA DISAPPOINT
                                
 A note of caution about oil demand was sounded by a report
showing that while U.S. initial jobless benefit claims fell
last week, they stayed above the key 400,000 level, indicating
loss of momentum in any jobs recovery. [ID:nN21185697]
                                
 Also a concern, the pace of U.S. Mid-Atlantic region
factory activity fell more than expected in April. It expanded
in March at its fastest pace in 27 years. [ID:nEAPAL0E20]
 (Additional reporting by Emma Farge in London and Francis Kan
in Singapore, and Joshua Schneyer and Gene Ramos in New York;
Editing by John Picinich and David Gregorio)