UPDATE 4-Brent oil eases below $109 on higher dollar

* Dollar holds near two-week highs, weighing on commodities

* Ukraine tension darkens Europe outlook, potential Brent demand

* U.S. crude boosted by lower inventoried

(Updates prices)

LONDON, Feb 27 (Reuters) - Brent crude oil futures briefly slipped below $109 on Thursday, pressured by a higher dollar, boosted by worries about escalating turmoil in Ukraine.

The tensions there kept the dollar at two-week highs, weighing on dollar-denominated commodities such as oil.

Brent crude was down 60 cents at $108.90 a barrel by 1105 GMT, recovering slightly from an intraday low of $108.85. It settled almost unchanged overnight.

U.S. oil fell 13 cents to $102.46 a barrel, after ending 76 cents higher the previous session.

"When you get markets in their current state of flux you've got a general risk-off sort of bias to proceedings, so you've got a slight negative bias towards Brent," said Michael Hewson, senior analyst at CMC Markets.

"There's an awful lot of concern about what effect Ukraine might have on the European growth story."

U.S. crude outperformed Brent, after the U.S. Department of Energy said on Wednesday that stocks at the oil distribution hub of Cushing, Oklahoma had fallen for a fourth straight week.

This helped narrow U.S. crude's discount to Brent to less than $7 a barrel for the first time since early October.

"It looks like we are going to see a continuation of the tightening of the spread between U.S. oil and Brent still, even if we are already down to $7," said Bjarne Schieldrop, chief commodities analyst at SEB.

"The stocks in Cushing are decreasing and will likely continue to do so."

U.S. gasoline inventories fell much more than expected last week as mild weather coaxed more drivers back on the roads, data from the Energy Information Administration showed.

Concerns over the consumption outlook for China, the world's second-biggest oil consumer, also weighed on oil prices, as a Reuters poll showed factory activity probably expanded only slightly in February.

(Additional reporting by Manash Goswami in Singapore; Editing by William Hardy)