UPDATE 1-Calif. Q4 gasoline demand fell 1.4 pct yr/yr-state

(Adds analyst comment)

HOUSTON, March 28 (Reuters) - California gasoline consumption in the fourth quarter of 2007 fell 1.4 percent year-on-year, in spite of a 1.2 percent increase in December gasoline use, the California state sales tax board said on Friday.

For all of 2007, drivers in California used nearly 1 percent less gasoline compared to the previous year, according to the California State Board of Equalization. On Wednesday. the Federal Highway Administration said Americans cut back on driving in 2007, the first such annual decrease in 20 years.

The Board of Equalization said the fourth quarter's 57-million-gallon drop was the seventh quarter in a row gasoline use has fallen in the largest U.S. motor fuels market.

December's increase in gasoline consumption ended a six-month slide, which analysts had attributed to retail gasoline prices regularly running well above $3.00 a gallon.

The drop in demand was bad news to West Coast refiners, said an energy analyst.

"If you're a refiner right now, you can't be all that happy," said David Hackett, president of Stillwater Associates. "Crude prices are high, gasoline demand is off, crack spreads are crummy. Yeah, interesting times."

Refiners with West Coast operations like Valero Energy Corp (VLO.N) and Tesoro Corp (TSO.N) have said they were cutting back production because of poor refining margins.

The high retail gasoline prices are leading some consumer behavior that confounds long-held assumptions about gasoline demand in California.

"Gasoline demand is inelastic, except when it's not really inelastic," he said. (Reporting by Erwin Seba)