* Cushing crude stocks fall 1.5 mln barrels, U.S. total gains - API
* Gasoline stocks fall 1.4 mln barrels, against forecast rise
* East Ukraine city calm after battle, rebels seek Russian help
* Libya standoff emerges, Premier refuses to yield to successor
By Manash Goswami
SINGAPORE, May 29 (Reuters) - Brent futures held near $110 a barrel on Thursday on hopes of improved demand from the world's top oil consumer, the United States, as a sharp fall in U.S. gasoline stocks added to recent data pointing to a stronger economy.
The brighter demand outlook is supporting prices, already at elevated levels due to supply disruption concerns from Libya and a widening rift between Russia, the world's top oil producer, and the West over Ukraine. Still, investors see the market as prone to a correction as some believe recent gains are overdone.
Brent crude traded 4 cents up at $109.85 a barrel by 0212 GMT, rising to as much as $110, after settling 21 cents down. U.S. oil gained 16 cents to $102.88, after ending down $1.39 as traders booked profits ahead of a government report that is expected to show a build in overall crude stocks.
"Fundamentals haven't changed drastically, we know there are still issues in Libya and Ukraine," said Ken Hasegawa, a commodity sales manager at Newedge Japan. "Both crudes are likely to fall because there have been lot of gains since the early part of May."
The U.S. benchmark fell more sharply than Brent overnight because it failed to break past key resistance at $105 a barrel, Hasegawa said. The contract may now slide further to below $100, he said. Similarly, the European benchmark may slip to $107.
Brent has recovered nearly 3 percent from an intraday low of $106.85 touched on May 1, while the U.S. benchmark has gained over 4 percent in the same period. That increase, without any change to fundamentals, is making both contracts vulnerable to a correction, he said.
Crude stocks in Cushing, Oklahoma, the delivery point for the U.S. benchmark, fell by 1.5 million barrels, data from industry group the American Petroleum Institute showed. That's helping overshadow the overall rise in inventories by 3.5 million barrels in the week to May 23 to 383.9 million, compared with analysts' expectations for an increase of 483,000 barrels.
In addition, gasoline stocks fell by 1.4 million barrels, compared with analysts' expectations in a Reuters poll for a 283,000-barrel gain.
Investors are now awaiting data from the Energy Information Administration (EIA) due later today to gauge the demand outlook in the United States.
Additional support is coming from the worsening crisis in Libya. Libya's acting prime minister, Abdullah Al-Thinni, refused to hand over power to a newly elected premier after questioning his legitimacy in a deepening confrontation among the OPEC nation's rival factions.
The North African state, struggling with unrest since a 2011 war ended Muammar Gaddafi's rule, now has two prime ministers and a parliament deadlocked by splits among Islamist, anti-Islamist and regional adversaries.
Investors are also watching the situation in Ukraine, where relative calm returned to the streets of Donetsk after the biggest battle of the pro-Russian separatist uprising in eastern Ukraine. Pro-Moscow gunmen have declared the city of a million people capital of an independent Donetsk People's Republic. On Wednesday their leader Denis Pushilin appealed again for Russia's help.
(Reporting by Manash Goswami; Editing by Richard Pullin)