Crude hits 31-month high as dollar weakens

NEW YORK (Reuters) - U.S. crude oil futures rose on Thursday to hit a 31-month high settlement after a volatile trading session that saw a weak dollar attract investors seeking alternative assets.

U.S. gasoline futures surged for a sixth straight session, driving prices to the highest level since July 2008 as the world's top consumer gears up for driving season. Brent crude held steady after closing in on its 2011 high.

Crude traded in a wide range again. The Federal Reserve's intention to keep U.S. interest rates near zero has weakened the dollar, luring investors to riskier assets. But soft U.S. economic data raised doubts about the energy demand outlook.

"The Fed did not give commodities traders any reason to think that the dollar's fall will be stemmed, creating incentive to keep buying commodities," said Stephen Schork, president at the Schork Group in Villanova, Pennsylvania.

U.S. crude for June delivery settled up 10 cents at $112.86 a barrel, the highest since September 22, 2008's close at $120.92.

In London, ICE Brent June crude ended at $125.02, off just 11 cents, after dropping to a session low of $124.07. It hit a session high of $126.66, near its 2011 high of $127.02, reached on April 11.

Less than an hour before the day's trading ended, U.S. crude volume was about 494,000 lots, 15 percent below the 30-day average. In London, Brent volume hit 373,000 lots, 4 percent below the 30-day average.

Volatile trading on both sides of the Atlantic came as other commodity bellwethers soared, with silver surging to an all-time high near $50 an ounce and gold leaping to a lifetime high of $1,538.35.

U.S. gasoline futures extended gains, with the front-month May contract closing at $3.4298 a gallon, up 1.04 cents, rising for the sixth day in a row and marking the highest settlement since the July 14, 2008 close at $3.5577.

Gasoline found support from refinery problems following a power outage in Texas City, Texas and 10 straight weeks of inventory draws that level stockpiles of the fuel at the lowest level since August 2009, according to U.S. government data. <EIA/S>

Rising pump prices have fed concern about a potential drop in demand. The U.S. Energy Information Administration reported U.S. oil demand in February was 762,000 barrels per day less than previously estimated, up only 9,000 bpd from a year earlier.

U.S. ECONOMIC DATA

Oil prices rallied early as the dollar weakened after data showed U.S. economic growth slowed in the first quarter, as higher food and gasoline prices sent inflation rising to its fastest pace in 2-1/2 years.

Also, the number of Americans seeking jobless relief unexpectedly rose last week, adding to worries about the economy.

Investors also eyed signs of lower supplies from the North Sea, after traders said at least two cargoes of Forties crude had been canceled and others delayed from the May loading program.

Light, sweet oil sourced from the North Sea has served as a vital substitute for Libyan exports which have been paralyzed by the continued fighting rebels attempt to drive leader Muammar Gaddafi from power.

(Additional reporting by Robert Gibbons in New York; Emma Farge and Caroline Copley in London; and Manash Goswami in Singapore; Editing by David Gregorio)