UPDATE 7-Oil rises above $85 as EU debt woes ease

                                
 * Euro gains, dollar dips on enhanced risk appetite
                                
 * Wall Street rallies on upbeat Fed economic view
                                
 * Coming up: U.S. real GDP Q1 data due Friday morning
                                
 (Updates throughout, changes byline, previous LONDON)
                                
 By Gene Ramos
                                
 NEW YORK LONDON, April 29 (Reuters) - Oil rallied on
Thursday as euro gains on the dollar inspired fresh hopes that
a financial rescue package to beleaguered Greece would allow it
to avoid debt restructuring, increasing appetite for risk.
                                
 An upbeat assessment of the U.S. economy and labor market
by the U.S. Federal Reserve on Wednesday, which came with its
decision to hold key interest rates at low levels for an
extended period also encouraged oil investors. [ID:nN28147074]
                                
 The Fed's statement continued to lift Wall Street, where
three major indexes gained more than 1 percent. [.N]
                                
 In the U.S., the world' biggest oil consumer, crude for
June delivery <CLMO> was up $2.09, or 2.5 percent, at $85.31 a
barrel, at 11:45 a.m. EDT (1545 GMT).
                                
 In London, the ICE Brent June crude <LCOc1> was up $1.45,
or 1.7 percent, at $87.61.
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For a graphic showing the cost of U.S. crude in different
currencies, see here:
http://graphics.thomsonreuters.com/10/OIL_UCUR0410.jpg
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 Brent's premium to U.S. benchmark West Texas Intermediate
narrowed to around $2.30, after ending at $2.94 at the close on
Wednesday, during which it went as high as $3.65, the widest
since Aug. 14, 2009. See [CL-LCO1=R].
                                
 Oil extended gains on Thursday after a report showed U.S.
jobless claims fell by 11,000 last week, less than initially
expected. [ID:nN28206933]
                                
 This week, U.S. crude prices have bounced off the 50-day
moving average at around $82.27 a barrel.
                                
 Crude prices have risen even though total U.S. crude
stockpiles rose by 1.9 million barrels in the week to April 23,
the Energy Information Administration said on Wednesday, more
than the forecast 1-million barrel increase. [EIA/S]
                                
 The supply glut, particularly at the Cushing, Oklahoma
delivery hug for oil traded on the New York  Mercantile
Exchange, has also depressed the front month oil contract
relative to more distant futures contracts, resulting in a
wider contango.
                                
 Adding support to the crude rally, gasoline futures in New
York rose more than 1 percent, a day before the front-month May
contract expires on Friday. The gasoline price rise was backed
by a surprise drawdown in domestic stockpiles last week.
                                
 According to EIA data, U.S. gasoline demand jumped 3.1
percent in the past four weeks from a year earlier, causing an
unexpected 1.2 million barrel drop in gasoline inventories last
week.
                                
 The news raised expectations for demand growth during the
summer driving season, which starts in May.
                                
 "There's still a feeling that demand is robust and that the
broad outlook is good. It's been largely ignoring other
developments," said oil broker Christopher Bellew at Bache
Commodities, highlighting strong growth in Asian countries such
as China.
                                
 On Wednesday, rating agency Standard & Poor's cut Spain's
credit rating by one notch, a day after lowering Greece debt to
junk status and downgrading Portugal, raising concerns of
spreading sovereign credit risk. [ID:nLDE63R2J0]
                                
 But the market is now hopeful that a debt bailout can be
swiftly implemented to prevent contagion, after German
Chancellor Angela Merkel threw her weight behind a deal,
analysts said.
                                
 Euro zone economic sentiment in April was better than
expected in a move that could also lift fuel consumption going
forward. [ID:nBRLTFE60X]
                                
 "The oil complex is being fuelled by a little less worry
over the situation in Greece, as both the EU leadership
(including Germany) and the IMF accelerate talks to get the
bailout package in place," said Dominick Chirichella of Energy
Market Analysis, adding that the stronger euro was also
supportive for oil.
                                
 The euro bounced from a one-year low against the dollar in
the previous session, making dollar-denominated oil cheaper for
buyers of other currencies. [EUR=]
 (Additional reporting by Emma Farge in London; Alejandro
Barbajosa in Singapore and Janet McGurty in New York; Editing
by Carole Vaporean)