* U.S. crude slips below $96, Brent dips from $120
* Rally capped by Saudi assurances it can plug shortage
* Gaddafi rumor unsubstantiated
* Options trade hits record on price speculation
* Coming up: U.S. preliminary 4th-quarter GDP, Friday
NEW YORK, Feb 24 (Reuters) - U.S. crude oil futures dropped more than 2 percent in a late sell-off on Thursday on rumors that Libyan strongman Muammar Gaddafi had been shot, wiping out gains in a rally to near 2-1/2-year highs.
Earlier, news that Saudi Arabia was in talks with European companies affected by the disruption of Libyan supplies and was willing and able to plug any gap appeared to have capped the day's highs, traders said. [ID:nLDE71N13Q] [EIA/S]
After losing some steam, prices firmed as weekly inventory data from the U.S. Energy Information Administration showed a smaller-than-expected build in crude inventories and hefty drawdowns in distillate and gasoline supplies. [ID:nN24262315]
Fewer than 20 minutes before the close of regular trading, U.S. crude turned negative and Brent futures followed shortly thereafter as the rumor about Gaddafi circulated.
There was no immediate indication of where the rumor had started or any news report to substantiate it.
* On the New York Mercantile Exchange, crude for April delivery CLJ1 settled at $97.28 a barrel, down 82 cents, or 0.84 percent, after rallying to $103.41, the highest since Sept. 29, 2008's intraday peak of $106.91. Post-settlement, it fell further to $95.62, down $2.48, or 2.52 percent.
* In London, ICE Brent for April delivery LCOJ1 settled at $111.36, up 11 cents, after trading from $111.83 to $119.79, the highest since the Aug. 22, 2008 intraday peak of $120.91. If fell to $109.60, down $1.65, after the settlement.
* NYMEX March heating oil HOH1 ended down nearly 1 percent, and March RBOB RBH1 closed with a tiny gain, after being swept up more than 5 percent by crude's rally.
* A violent surge in crude oil markets since the revolt in Libya broke out has driven options trade to a fresh record, NYMEX said, as traders speculate on higher prices and consumers dash to hedge their costs. [ID:nN24281955]
* Key Libyan oil and product terminals to the east of Tripoli are in the hands of rebels who have seized control from leader Muammar Gaddafi. [ID:nLDE71N1XM]
* Gaddafi loyalists launched a counterattack on rebels holding towns near Tripoli, and the United States did not rule out military action in response to the crackdown. [ID:nLDE71N009]
* New U.S. filings for jobless benefits fell last week, but orders for a range of manufactured goods recorded their largest decline in two years in January. [ID:nN24107116]
* U.S. crude inventories rose 822,000 barrels last week, distillate stockpiles fell 1.3 million barrels and gasoline stocks dropped 2.8 million barrels, EIA data showed. [EIA/S]
* Wall Street rose in a late rebound as Brent backed off from its near $120-a-barrel high in a volatile session that suggested investors aren't quite ready to give up on the market's rally. [.N]
* In late trading, the U.S. dollar was down 0.41 percent against a basket of currencies, hit by higher oil prices which stoked worries about the impact on consumer spending. .DXY [USD/]
* Gold eased below $1,400 an ounce as safe-haven buying dried up when the oil rally fizzled on news Saudi Arabia was in talks to raise oil output and as traders picked up the rumor about Gaddafi. [GOL/]
* Copper snapped a three-day losing streak, reacting to a weaker dollar and volatile crude oil prices. [MET/L]
* Reuters/University of Michigan U.S. consumer sentiment for February, 9:55 a.m. EST (1455 GMT) on Friday.
SETTLE NET PCT LOW HIGH CURRENT DAY AGO
CHNG CHNG VOL VOL CLc1 97.28 -0.80 -0.8% 95.62 103.41 486,845 489,667 CLc2 98.74 -1.08 -1.1% 97.21 104.95 144,308 167,464 LCOc1 111.36 0.11 0.1% 109.60 119.79 301,164 258,624 RBc1 2.7167 0.0018 0.1% 2.6878 2.8560 12,990 27,674 RBc2 2.8749 0.0072 0.3% 2.8443 3.0354 44,817 48,928 HOc1 2.8773 -0.0276 -1.0% 2.8450 3.0625 17,836 29,336 HOc2 2.8932 -0.0234 -0.8% 2.8583 3.0767 58,347 53,273 TOTAL MARKET VOLUME OPEN INTEREST
CURRENT Feb 23 30D AVG Feb 23 NET CHNG CRUDE 1,105,28 1,278,653 929,264 1,524,983 -18,389 RBOB 117,432 134,662 119,148 278,064 -3,814 HO 151,605 161,078 134,223 312,706 -9,094 (Reporting by Gene Ramos; Editing by Dale Hudson)