* Dollar holds near two-week highs, weighing on commodities
* Ukraine tension darkens Europe outlook, potential Brent demand
* U.S. crude boosted by lower inventories
(Adds analyst's quotes and updates prices; changes byline and dateline, previous LONDON)
NEW YORK, Feb 27 (Reuters) - Brent crude oil futures fell on Thursday, pressured by volatility in Ukraine that curbed risk appetite.
Most equities markets around the world edged lower as traders remained suspicious of Russia's comments on Thursday that it will work with the West on resolving the crisis in Ukraine, while tensions in Crimea near the Russian border worsened.
U.S. equities were steady to slightly higher however as traders turned to Federal Reserve Chair Janet Yellen's testimony to the Senate Banking Committee for indications of the central bank's thinking on the economy's strength.
Brent crude was down 80 cents at $108.74 a barrel at 11:38 a.m. EST (1638 GMT). It settled almost unchanged overnight.
U.S. oil fell 47 cents to $102.12 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 <CL-LCO1=R> to $6.02 a barrel earlier in the session, the tightest point since Oct. 7. The spread last traded at $6.72 a barrel.
"WTI is going to outperform Brent based on tightening inventories and the draw in Cushing," said Bill Baruch, senior market strategist at futures trading website iitrader.com in Chicago. "We expect that spread to move in even more."
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.
In spite of the bullish inventory numbers, U.S. RBOB gasoline prices for the March contract fell more than 3 cents to $2.7673 per gallon as traders got out ahead of the contract's expiry on Friday. RBOB prices for April fell 2-1/2 cents to $2.9607 per gallon.
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 likely expanded only slightly in February.
(Additional reporting by Shadi Bushra in London and Manash Goswami in Singapore; Editing by William Hardy, Jason Neely and Chris Reese)