* Fighting in Ukraine escalates
* U.S. job growth surges, unemployment at 5-1/2 year low
* Record high U.S. crude inventories weigh on oil
* U.S. to create 1-mln-barrel gas reserve to avert shortage (New throughout, updates prices and market activity to settlement, adds CFTC data)
By Elizabeth Dilts
NEW YORK, May 2 Oil prices rose on Friday as violence in Ukraine and job growth in the United States spurred buying, and technical short-covering before the weekend also lent support.
U.S. and Brent crude oil were down on a weekly basis after data earlier in the week showed record high U.S. crude inventories.
"After a significant fall this week, there was short covering going into the weekend on the back of increased violence in the Ukraine," said Andrew Lipow, president of Lipow Oil Associates in Texas. "The jobs report was supportive, which leads the market to expect an improvement in demand."
On Friday, more than 40 people were killed in Odessa, where pro-Russian activists and supporters of Ukrainian unity fought. Earlier, in the eastern city of Slaviansk, pro-Moscow rebels shot down two Ukrainian helicopters, killing two crew members.
In Washington, U.S. President Barack Obama and German Chancellor Angela Merkel vowed more sanctions against Russia if Moscow impeded planned elections in Ukraine this month.
Russia said it would reduce natural gas supplies to Ukraine in June if no prepayment is received this month.
Oil prices were also were supported by data that showed U.S. employers hired workers in April at the fastest clip in more than two years. Unemployment dived to a 5-1/2-year low of 6.3 percent, pointing to a rebound in economic growth in the world's largest oil consumer.
June Brent crude settled 83 cents higher at $108.59 a barrel, but still ended the week nearly 1 percent lower. U.S. crude rose 34 cents to $99.76 a barrel, and ended the week 0.8 percent lower.
U.S. and European oil benchmarks had tumbled mid-week after U.S. Energy Information Administration data showed U.S. crude inventories hit a record high last week on the back on strong output.
On Friday, U.S. gasoline futures settled half a cent higher at $2.9445 per gallon, supported by news the U.S. Energy Department will establish a 1 million-barrel gasoline reserve to prevent fuel shortages in the U.S. Northeast.
Gains were limited by the impending return of more Libyan exports. On Thursday in Libya, state-run National Oil Corp (NOC) said the Zueitina port was expected to load its first tanker of crude since reopening after nearly 10 months due to protests.
Money managers pared their net long U.S. crude futures and options positions in the week to April 29, the U.S. Commodity Futures Trading Commission said late on Friday. (Additional reporting by Julia Payne in London and Florence Tan in Singapore; Editing Alden Bentley, Bernadette Baum and David Gregorio)