UPDATE 8-Oil reverses after hitting 2-1/2-year peak

                                
 * OPEC members say can do little to control prices
                                
 * Euro hits 14-month high ahead of ECB rate decision
                                
 * China hikes fuel price 5 pct, trails rising crude
                                
 * U.S. stockpiles data mostly in line, crude up
 (Rewrites throughout, updates prices, updates graphics,
changes dateline from previous LONDON)
                                
 By David Sheppard
                                
 NEW YORK, April 6 (Reuters) - Brent crude surged to a
2-1/2-year high above $123 a barrel on Wednesday, before
erasing gains in volatile trade as market players fretted the
recent rally was overdone.
                                
 Brent's dip on Wednesday snapped a four-day rise that had
seen prices climb almost $8 a barrel. Mounting evidence that
the fighting in Libya could drag on and continue to disrupt oil
supplies from the OPEC member has pushed prices up, alongside
simmering tensions in the wider Middle East.
                                
 Members of the Organization of the Petroleum Exporting
Countries said they could do little to control prices driven by
speculators betting on "worst-case scenarios", adding that the
market is still well supplied.
                                
 Weekly inventory data from the U.S. Energy Information
Administration was largely in line with expectations, showing
crude stocks in the world's largest oil consumer rose slightly
more than forecast and gasoline stocks fell slightly less than
expected. [ID:nN06134822]
                                
 "Oil prices are pulling back from earlier highs and
consolidating as people are taking some profits," said Tom
Knight, a broker at Truman Arnold in Texarkana, Texas.
                                
 "This does not disturb the market's upward momentum. People
are waiting for the expected ECB (European Central Bank)
interest rate hike tomorrow and looking for further
direction."
                                
 Brent crude <LCOc1> traded down 46 cents at $121.76 a
barrel by 1:48 p.m. EDT (1848 GMT), having fallen more than $1
from its earlier 2-1/2-year high of $123.37 a barrel.
                                
 U.S. crude oil futures <CLc1> were almost unchanged on the
day at $108.35 a barrel after touching $109.15, the highest
level since September 2008.
                                
 A Reuters poll of traders, bank analysts and hedge fund
managers showed many think Brent's rally could be about to
stall, with a majority expecting a drop below $120 a barrel by
the end of the quarter.
                                
 However, many also said tensions in the Middle East could
push prices to $130 or even $150 a barrel in the second half of
the year. For details, see [ID:nN06206555]
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
  Reuters Brent poll results: http://r.reuters.com/ken88r
  ECB in graphics:            http://r.reuters.com/kah88r
  FACTBOX on Libya's oil production:      [ID:nLDE72U0ZR]
  More on Middle East unrest:              [ID:nTOPMEAST]
  For latest U.S. oil inventory data see: [API/S] [EIA/S]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 The Paris-based International Energy Agency, adviser to
industrialized nations on energy policy, warned that current
oil prices could derail an economic recovery. [ID:nLDE7351IF]
                                
 "Oil at $120 or more has an effect on economic activity. We
have seen similar levels during times of economic slowdown if
not recession," its deputy director, Richard Jones, told
Reuters in Dubai.
                                
 INFLATION FEARS
                                
 Concerns about rising inflation are expected to see the ECB
hike interest rates on Thursday for the first time since the
financial crisis. The euro <EUR=> rose to its highest against
the dollar since January 2010.
                                
 Dollar weakness has buoyed hard assets priced in the U.S.
currency, with the 19-component Reuters-Jeffries CRB commodity
price index <.CRB> hitting its highest since early March.
                                
 But analysts have warned that tighter monetary policy is
soon to follow in the United States, with the end of the second
round of quantitative easing in sight. Cheap money is viewed by
some as inflating the value of commodities such as oil, and
prices could fall as central banks move to dampen inflation.
                                
 "Central bankers will always claim that they have no
influence on oil prices," said Olivier Jakob at trading
advisory Petromatrix in Zug, Switzerland.
                                
 "But recent history has repetitively shown that in the new
world, where commodities are a global asset, central bankers
can have a greater influence on oil prices than OPEC."
                                
 China raised retail gasoline and diesel prices by 5.0
percent to 5.5 percent on Wednesday, the day after it hiked
interest rates for the fourth time since October in a bid to
tame rising inflation. [ID:nL3E7F6146]
  (Additional reporting by Dmitry Zhdannikoz in London; editing
by Dale Hudson)