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UPDATE 7-Brent crude rises over $1 on Ukraine war of words

* Kiev resumes operations in Eastern Ukraine with fatalities

* Putin warns of 'consequences' of Ukrainian army actions

* Strong U.S. durable good orders point to higher demand

* Output at key North Sea field cut, Libyan supply mostly offline

(Adds analyst, updates prices, changes dateline, byline, previous LONDON)

NEW YORK, April 24 (Reuters) - Brent crude futures rose by more than a dollar a barrel on Thursday as mutual accusations of aggression by Ukraine and Russia raised concerns over future oil supplies, while strong U.S. economic data suggested higher demand.

Ukraine resumed its operation to disarm pro-Moscow separatists in the east of the country and retake their positions, killing five and prompting Russia to launch fresh military drills close to the Ukrainian border.

Russian President Vladimir Putin warned of "consequences" if Kiev used the army against its own people and questioned the legitimacy of an upcoming presidential election there. His Ukrainian counterpart demanded Russia end its "threats and blackmail" and pull back troops from the border.

Global benchmark Brent crude was up $1 a barrel at $110.11 by 11:30 a.m. (1530 GMT), after settling 16 cents lower on Wednesday. U.S. crude rose 64 cents to $102.08.

"It definitely seems to be heating up. We're seeing risk premium coming back into the market. The first reports of the war of words caused a spike and we're definitely sensing that the odds of a cut of supplies to Ukraine is rising again," said Phil Flynn, analyst at Price Futures Group.

A cut in Russian supplies of gas to Ukraine would increase demand on oil products as replacement fuels. In addition, any further Western sanctions against Russia could cause disruptions in supplies from the world's second largest oil producer.

U.S. President Barack Obama said more sanctions were "teed up" against Russia if it fails to deliver on promises made in an agreement in Geneva last week to ease tensions in Ukraine.

Strong economic data in the United States lent additional support to the U.S. oil prices, which have been otherwise weighed down by strong supplies as crude oil inventories rose to their highest levels on record last week.

Government data showed orders for long-lasting manufactured goods rose 2.6 percent in March, more than expected, in the latest of industrial, retail and employment reports that suggest the economy has gained steam after a troubled first quarter.

U.S crude oil stockpiles rose to 397 million barrels last week, according to Department of Energy data issued on Wednesday, the highest level since record-keeping began in 1982.

"The immediate demand-supply dynamic is negative, but Ukraine is the wild card that is stopping the market from declining further," said Ric Spooner, chief analyst at CMC Markets.

"For the near term, I see markets largely neutral, trading in a range with a downward bias."

Disruption to output in Libya, and a supply cutback at the largest British North Sea oilfield, also supported Brent.

Rebels in eastern Libya said the Ras Lanuf and Es Sider terminals would not be reopened as the government had not implemented its part of a recent deal to end an oil blockade. Libyan oil output has been cut to 220,000 barrels per day (bpd) from 1.4 million bpd in summer due to protests.

Supply at the 200,000 bpd North Sea Buzzard oilfield was cut by a quarter, a trade source said on Wednesday. The field is the biggest contributor to Forties, one of the four crude streams underpinning Brent. Operator, Nexen confirmed on Thursday output had fallen due to maintenance work.

(Additional reporting by Alex Lawler In London and Manash Goswami in Singapore; Editing by Dale Hudson, David Evans and Tom Brown)